[JAKARTA] Indonesia's central bank said on Tuesday there is a risk of a global currency war as the dollar gains strength but the rupiah will not be involved.
The rupiah is emerging Asia's worst performing currency this year, having lost about 7.5 per cent year-to-date against the dollar. It has reached multiple 17-year lows since last week, and at 0400 GMT Tuesday was trading at 13,380 to the dollar.
Other currencies have also weakened against the greenback on expectations US interest rates may rise in September.
Bank Indonesia (BI) spokesman Peter Jacobs said the recent depreciation of the rupiah is not a sign of Indonesia entering a currency war and that the central bank will maintain the exchange rate of the currency to reflect the fundamentals of Southeast Asia's largest economy. "It was advanced economies that tend to devaluate their currencies to preserve export competitiveness. Most emerging markets are not doing that," Mr Jacobs said.
The statement echoes BI Governor Agus Martowardojo, who on Monday night said he sees a global currency war in the next three years as the US gradually increases interest rates and other economies manage their competitive positions. "Looking ahead, there is a risk of currency war where the dollar tends to strengthen so that other countries will be affected and that Indonesia must remain vigilant," Mr Martowardojo said.
BI will stand by to guard the rupiah so that its volatility remains "within acceptable range", Mr Martowardojo said, adding that in the past the central bank has tried to keep the fluctuation of the rupiah exchange rate to 10 percent a year. "I'm not saying it (the rupiah's movement) has to be below 10 percent or above 10 per cent, but the current volatility remains under 10 percent," he added.
He also said on Monday that the rupiah is usually at its weakest at the end of June due to rising domestic dollar demand as firms pay their foreign-currency liabilities.
On Tuesday, the yield of Indonesia's 10-year government bond rose to its highest since February 2014.