Rupiah alarm! Level Rp18,000 per US Dollar can trigger market panic

JAKARTA - President Commissioner of HFX International Futures Sutopo Widodo assessed that the movement of the rupiah is still in a strong depreciation trend.

He added that technically, the rupiah exchange rate in the range of Rp17,970-Rp18,000 became a very important psychological resistance area for the market.

According to him, if the rupiah breaks through and stays above that level, the weakening pressure could increase due to increased market participants' concerns.

"The level of Rp17,970 to Rp18,000 acts as a very crucial psychological resistance wall if this limit is broken and lasts until the market closes, commercial panic can push for further weakening," he told VOI, Wednesday, June 3.

He added that on the contrary, the area of Rp17,850-Rp17,880 is expected to be the nearest support zone if Bank Indonesia's intervention is able to maintain the stability of foreign exchange liquidity in the market.

Sutopo explained that the weakening of the rupiah, which almost touched the level of Rp18,000 per US dollar, was triggered by a combination of external and domestic factors.

On a global scale, increasing geopolitical tensions in the Middle East have encouraged capital flows towards safe haven assets, thus strengthening the US dollar.

According to him, this condition is strengthened by the increase in the yield of US government bonds with a tenor of 10 years which exceeds 4.45 percent after the US labor data showed better resilience than expected.

Meanwhile, from within the country, Sutopo said the pressure on the rupiah was exacerbated by the shrinking trade balance surplus to the lowest level since 2020, which reduced the supply of foreign exchange from the export sector.

He added, at the same time, May's inflation which reached 3.08 percent on an annual basis also increased concerns about the risk of imported inflation.

Sutopo said that if the weakening of the rupiah continues to approach or break through the level of Rp. 18,000 per US dollar, the impact can be felt in the increase in the cost of importing industrial raw materials for manufacturing which are still dependent on foreign supplies and this condition has the potential to trigger continued inflationary pressures at the consumer level.

According to him, to maintain exchange rate stability, Bank Indonesia is expected to optimize the triple intervention strategy through the spot market, Domestic Non-Deliverable Forward (DNDF), and the bond market.

In addition, he added, the central bank also has the opportunity to consider further monetary tightening measures through adjustments to the benchmark interest rate after a 50 basis point increase in the previous month.

Sutopo said that from the fiscal and real sectors, the government was considered to need to ensure the implementation of the one-door export integration policy through PT Danantara Sumberdaya Indonesia and the optimization of the policy of placing 100 percent of the Export Earnings (DHE) in the Himbara bank to strengthen domestic foreign exchange liquidity and support financial market stability.