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[JAKARTA] The rupiah dropped to its weakest level since 1998 on concern slowing economic growth in China may worsen the nation's trade balance.
The currency fell as much as 0.4 per cent to 13,030 a dollar on Thursday, the weakest level since August 1998, prices from local banks compiled by Bloomberg show. It closed at 12,989. One-month non-deliverable forwards were little changed at 13,139 a dollar, data compiled by Bloomberg show.
China, Indonesia's largest trading partner, aims for an economic expansion of about 7 per cent this year, the lowest target in more than 15 years and down from last year's goal of around 7.5 per cent, Premier Li Keqiang said in a work report in Beijing today. The rupiah's weakness is "beneficial" in lowering imports and improving export competitiveness, the nation's central bank said Feb 17 as it cut interest rates.
"There's a sense that further gradual weakness in the rupiah is being encouraged by the officials," Mitul Kotecha, head of Asia-Pacific currency strategy at Barclays Plc, said by phone from Singapore.
"It doesn't reflect any particularly negative sentiment toward reforms or the economy, it's just an acceptance of the strong dollar environment and a bid to remain competitive in the region."
Bank Indonesia Governor Agus Martowardojo said Feb 27 that he sees further currency depreciation as improvements in the US economy boost the dollar. The rupiah will likely weaken to 13,100 a dollar this half and to 13,250 by end-September, Barclays's Kotecha predicts. The Bloomberg Dollar Spot index, which tracks the greenback against 10 major peers, has rallied 18 per cent since the end of June.
UBS Group AG sees the rupiah's weakness hurting local bonds and equities. The currency's one-month implied volatility climbed 20 basis points, or 0.20 percentage point, to 11.96 per cent on Thursday, data compiled by Bloomberg show. Bank Indonesia will always be in the market to guard stability, Martowardojo told reporters in Jakarta on Thursday.
Indonesian government bonds due September 2025 fell for a fourth day, with the yield climbing nine basis points, or 0.09 percentage point, to 7.38 per cent, according to the Inter Dealer Market Association. That's the highest since Feb 17.