Bank Indonesia Gives Explanation Regarding the Rupiah Drop

rupiah IDR

The Indonesian currency, the Rupiah, continues to be under pressure. Now the US dollar is at the level of Rp. 14,800. Many international factors contributed to the rupiah weakening. Investors panicked as the world was headed for a recession.

Head of the Department of Economic and Monetary Policy of Bank Indonesia (BI), Edi Susianto, quoted on Friday (17/6/2022) explained, “The market opening in the Asian market was greatly influenced by what happened in the NY market last night, where the dominant sentiment was a concern. an economic recession after the 75 bp increase in FFR. As a result, stocks turned red.”

However, according to Edi, the rupiah did not weaken by itself. Several other countries, especially in the region, also experienced a similar fate. “Most Asian currencies opened lower,” he added.

BI, said Edi, will always be on standby in the market to monitor the latest developments. The steps taken ensure that the market mechanism works. “BI always keeps the market mechanism working properly,” he said.

The Fed did raise the benchmark interest rate 75 bps in June 2022 in line with market forecasts. However, high inflation is still a ghost to the economy and financial markets.

In addition to the Fed, the British central bank Bank of England (BoE) also took similar steps. At the June 2022 meeting, the BoE again raised its benchmark interest rate by 25 bps to 1.25%.

One of the causes of the volatility in world markets is the BoE’s forecast that inflation could reach 11% even after the BoE raises interest rates.

The UK inflation rate of more than 11% is expected to occur in October. The BoE also cut down its economic forecast and forecast the economy to contract by 0.3% this quarter.

As previously reported, Trading Tuesday (14/6) opened with the Rupiah dropping to its lowest level in 18 months (since October 2020). The rupiah weakening was caused by external pressure or international sentiment that continued to pressure Indonesia.

According to Refinitiv data, at 9:22 WIB the rupiah fell 0.57% to Rp 14,762/US$. This position is the weakest since October 5, 2020.
Not only that, the rupiah fell when several Asian currencies were able to strengthen. Inevitably, the rupiah was again the worst in the Yellow Continent.

Rising inflation in the United States is the cause of the collapse of the rupiah. Inflation based on the consumer price index (CPI) in the US in May 2022 rose 8.6% year-on-year (YoY). The inflation rose from the previous month’s 8.3% (YoY) and was the highest on record since 1981.

When inflation is high, people’s purchasing power will decrease. Household consumption, which is the backbone of the economy, will be a hit.