Rupiah nears lowest since April 2020 as Bank Indonesia hike fails to stem rout

BANK Indonesia’s surprise raise in interest rates last week has failed to stem the rout in the rupiah. 

The currency approached 16,000 per dollar, a key level last seen in April 2020, as markets remain concerned over elevated oil prices and rising Treasury yields. The currency weakened as much 0.6 per cent to 15,969 per dollar, extending declines into a fourth day, before the central bank intervened to support the currency.

“The inability of the rupiah to regain traction on the hike reflects the magnitude of the challenges” from a hawkish Federal Reserve, higher oil prices and fiscal vulnerabilities, said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “It arguably harkens back to days of rupiah, rather than price, stability being the unambiguous policy mandate.”

The Indonesian currency has been the worst performer among Asian peers in October, slumping 3.1 per cent. Investors have pulled US$599 million out of the nation’s bonds this month as the spread to Treasuries narrowed, forcing BI to hike its key rate and introduce new FX securities last Thursday to attract inflows.

While further loss in the rupiah toward 16,500 per dollar is not out of the realm of possibility, Bank Indonesia will have more tools via its FX reserves and liquidity management, to help the currency, Varathan said.  BLOOMBERG