REPUBLIKA.CO.ID, JAKARTA -- The Indonesian central bank, Bank Indonesia (BI), stated that the weakening of currency exchange rates against the US dollar is happening globally and not only in rupiah.
It happens due to market players' reaction to the United States' tax reduction plan as well as the signal of US Federal Reserve monetary tightening policy at the end of the year and 2018.
Senior Deputy Governor of BI, Mirza Adityaswara, stated, after attending the Indonesian Chamber of Commerce and Industry (KADIN) National Congress in Jakarta on Tuesday, that the rupiah weakened 0.27 percent against the US dollar on Tuesday.
It is better than the Indian rupee's weakening of 0.4 percent, the Japanese yen's weakening of 0.33 percent, and the Singapore dollar's weakening of 0.32 percent.
The rupiah's exchange rate per day is only worse than China's renmimbi, which weakened 0.24 percent. "It means that weakening of currencies is happening globally," he explained.
According to Mirza, the weakening of this exchange rate has been widely predicted. The cause is, firstly, the plan of US President Donald Trump to reduce the amount of tax in US.
The policy, if approved by the Senate and the US Congress, is believed to boost US economic growth to lure investors to divert funds to the United States.
"With the economic recovery, there is the possibility that interest rates in the US will rise faster and then, the dollar will be pulled back," he noted.
The second cause is the statement by Fed's Jannet Yellen statement last week that was hawkish and linked market participants to a potential rise in the Fed's benchmark rate in December 2017.
The third culprit is the market players' speculation about the Fed's governing succession in 2018. There has been speculation among market participants that one of Yellen's successor candidates is an economist named Kevin Warsh, who is bent on a tight monetary policy.
"It is always a topic in the financial markets," he added.
The exchange rate of rupiah at the interbank transactions in Jakarta on Tuesday morning dropped by 30 points to Rp13,570, compared to the previous position at Rp13,540 per US dollar (US).
BI's Jakarta Interbank US Dollar Spot Reference Rate on Tuesday morning also opened lower at Rp13,582 per US dollar.
The rupiah spot market was at Rp13,540 per US dollar on Tuesday afternoon.
Monetary analyst of Investindo Futures, Putu Agus, remarked that the high probability of a Fed Fund Rate hike pushed the US dollar to strengthen against the majority of the world's currencies, including the rupiah.
"The US interest rate hike led to a shift in investor interest in safe-haven currencies, such as the US dollar," Agus explained.
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