The rupiah breached another psychological threshold again as it fell to
more than Rp 12,000 per US dollar for the first time in four years,
further hurting the country’s manufacturing industry, which mostly
imports raw material for its production needs.
Indonesian Employers Association (Apindo) chairman Sofjan Wanandi said
manufacturing firms, including those in food and beverages, textiles and
footwear production, would feel the worst impact of the situation as
import content was commonly high in their output, he said.
“They will be severely hurt because the cost of raw material purchases
will surge while at same time it will be very difficult for them to
raise their prices due to tight competition in such an economic
slowdown,” Sofjan told The Jakarta Post.
Sofjan said it would be necessary for Bank of Indonesia to soon
intervene by boosting its dollar reserves to calm the market. In
addition to this, a long-term solution should be taken through executing
a few measures earlier issued in anticipation of the current slowdown.
The rupiah fell 1.1 percent to hit Rp 12,015 per dollar as of 4.25 p.m.
in Jakarta, the weakest level since March 2009, according to prices from
local banks compiled by Bloomberg. The currency depreciated 2.7 percent
this week, its worst weekly decline in November.
Financial analysts said that the fall in the rupiah was mainly caused by
surging demand for dollars, which usually peaked near the end of the
year as companies increased their greenback purchases for earnings
repatriation and foreign debt payments. Externally, the US Federal
Reserve signaled a possible tapering of its monetary stimulus that could
be decided in its next meeting on Dec. 17-18, consequently triggering
capital outflows in emerging countries, including Indonesia.
“It’s the end of the year when demand for dollars increases,” Harry Su,
the head of research with Bahana Securities, commented on the rupiah’s
recent weakness. “The situation is worsened by the fact that BI no
longer supplies dollars for Pertamina, with the company now entering the
market to buy dollars.”
On Thursday, the Jakarta Composite Index (JCI) fell 0.4 percent to close
at 4,233.93, the weakest level since Sept. 9. “Foreign investors will be
reluctant to re-enter the market if the rupiah still has a tendency to
weaken,” said Harry.
With the rupiah now heading into another depreciation spiral, all eyes
are now fixed on BI, the central bank, which faces the challenging task
of trying to support the under-pressure currency without depleting its
foreign exchange (forex) reserves too much.
The central bank has loosened intervention in the currency market, a
strategy that has led to a significant increase in its forex reserves,
which have strengthened for three consecutive months to top $97 billion
by the end of October.
“Because volatility has now returned, it is BI’s focus now to protect
the rupiah until it stabilizes at a certain level,” BI spokesperson Difi
Johansyah said on Thursday evening. “Whether it is 11,500 or 11,800 or
12,000 [per dollar]; we just want the market mechanism to function
again.”
Standard Chartered economist Fauzi Ichsan said the rupiah’s depreciation
would hit the business sector hard.
“The fall in the rupiah will increase import costs, thereby hitting
industries that import a lot of raw materials. Furthermore, a lot of
companies have debts in US dollars,” he told the Post on Thursday in a
telephone interview.
He said the rupiah may depreciate further, reaching Rp 12,500 in the
first half of next year.
Publicly listed plantation company PT Salim Ivomas Pratama, however,
said it expected a windfall as the rupiah’s depreciation would increase
its export earnings, according to its head of treasury Johnny Ponto.
“I think our clients can still tolerate a [dollar] level of between
12,000-12,500,” said Pahala N. Mansury, the finance and strategy
director with state-run Bank Mandiri. “However, some of them might start
feeling the pinch if it hits 13,000.”