Rupiah Slipped to the Lowest Level, Confidence in Economic Stability Questioned

US dollar and rupiah (Photo: dok. Antara)

JAKARTA - The rupiah exchange rate again weakened against the US dollar (USD) in Monday, June 8 trading.

At the close of trading, the spot rupiah was at Rp18,187 per US dollar or weakened 0.84 percent compared to the close of Friday, June 5, 2021 at Rp18,036 per US dollar, and was the weakest rupiah closing in history.

Throughout the trading session, the rupiah was also traded in the range of Rp18,201 per US dollar, weakening 165 points or 0.91 percent based on Bloomberg data as of 13.48 WIB.

President Commissioner of HFX International Futures, Sutopo Widodo, assessed the weakening of the rupiah, which had broken through a new psychological level at Rp18,200 per US dollar, as a signal of serious vigilance for economic stability.

He said the weakening of the rupiah reflected a perfect storm, a combination of the strengthening of the US dollar, global geopolitical tensions, and domestic fiscal vulnerabilities.

"We are witnessing a perfect storm phenomenon where domestic fiscal vulnerabilities are hit simultaneously by the aggressiveness of the United States monetary policy and global geopolitical shocks. This is no longer just a daily fluctuation, but a macro pressure that forces our monetary authorities to play in a very tight defensive mode," he told VOI, Monday, June 8.

According to him, the weakening of the rupiah is currently triggered by three major sentiments that are interrelated, one of which is the strengthening of the US dollar triggered by solid US employment data and expectations of higher interest rate policies for longer.

He explained that the US employment data (Non-Farm Payrolls) in May increased by 172,000 jobs, and this condition raised expectations that US inflation would still remain high.

Sutopo added that under the leadership of the new Fed Chairman, Kevin Warsh, the market estimates the chances of a further interest rate hike in December at 70 percent.

"As a result, the US Dollar Index (DXY) is solid above 100.02 and triggers mass capital outflow from emerging markets," he explained.

Meanwhile, he said that the increase in world oil prices due to geopolitical conflicts also worsened external pressure on Indonesia as an energy-importing country.

"As a net oil importer, this price increase directly burdens Indonesia's trade balance and widens the budget deficit due to the swelling fuel subsidy (BBM) under the government of President Prabowo," he explained.

On the other hand, Sutopo said the decline in foreign ownership of Government Securities (SBN) showed investors' increased caution towards Indonesia's fiscal prospects.

"Foreign ownership of government securities has fallen to its lowest level in almost 20 years. The market is showing a wait-and-see attitude and tends to be skeptical of fiscal transparency and plans to expand the government's budget spending in the future," he said.