Hashim Djojohadikusumo, chairman of the Kadin Advisory Council, warned at the Kadin National Working Meeting in Jakarta that the rupiah could weaken further. He said the currency could reach 20,000 to 21,000 per US dollar, and that the risk rises if MSCI downgrades Indonesia’s capital market from emerging market to standalone market status and foreign investors withdraw capital.
Hashim said the government should resolve the issue quickly. He described a scenario in which the rupiah moves to 21,000 to 22,000 per US dollar, and warned that foreign loans would then have to be repaid at a higher cost.
Central bank stresses fundamentals
Bank Indonesia Governor Destry Damayanti responded to reporters in Jakarta. She said the central bank is working to maintain rupiah stability and that the country’s economic fundamentals are relatively good compared with its peer group.
Destry said rupiah movements depend on supply and demand, but also on perception. She pointed to a recent decision by the US central bank not to raise interest rates, which she said had an immediately positive effect on the currency.
Foreign loans and the MSCI question
Hashim linked the currency risk directly to the index provider’s review of Indonesia’s market classification. A downgrade to standalone status could prompt outflows, which he said would weaken the rupiah further.
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Destry noted that several drivers of the currency, including Fed policy, lie outside the central bank’s control.
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Source: Bank Indonesia
