The Rupiah Continues To Weaken Against The US Dollar, This Is The Cause

Bambang Brodjonegoro (Photo: Doc. Antara/UI)

JAKARTA - Economist and former Minister of Finance (Menkeu) for the 2014-2016 period, Bambang Brodjonegoro explained the strengthening of the United States (US) dollar against all currencies including the rupiah exchange rate because the market was stuck with the Fed's interest rate policy.

"Why does the dollar strengthen to all currencies? Because all parties are 'cheeky' because they think the Fed will soon cut interest rates," Bambang said in the event 'The Fun Talk of the Impact of the Iran-Israeli Conflict on the Indonesian Economy' held by Eisenhower Fellowships Indonesia Alumni Chapter, Monday, April 15.

According to Bambang, the Fed's decision to cut interest rates has actually been predicted not to happen in the middle of this year because inflation rates in the US are still above the Fed's target. Likewise what happened in Japan.

Bambang said external conditions were the main cause of the weakening of the rupiah exchange rate.

Bambang assessed that the Fed will maintain the benchmark interest rate longer due to the high impact of the Middle East conflict escalation.

According to Bambang, the policy will indirectly have an impact on the rupiah exchange rate and the Indonesian economy.

"So basically, externally, we will face serious challenges, and this can make the rupiah depressed," he said.

Bambang assessed that as an anticipatory measure for this, Bank Indonesia (BI) is expected to intervene in the rupiah exchange rate.

"But also BI can't just use dollar reserves to make interventions because the consequences will be fatal," he explained.

Bambang said that even if BI took steps to raise interest rates, it was not the right step considering the current condition of the US dollar which strengthens against almost all other national currencies as a result of high interest rates.

"In addition now because of Iran-Israel, investors as usual will look for save havens. The safest place is always two, one US dollar, one US treasury bond," he concluded.