Indonesian rupiah falls to lowest since Asian financial crisis

[MELBOURNE] The Indonesian rupiah declined to its weakest level since the Asian Financial Crisis as fears mounted over the nation’s fiscal trajectory, putting pressure on the central bank to step up efforts to defend the currency.

The rupiah fell 0.5 per cent to 16,641 against the US dollar on Tuesday (Mar 25), its weakest since June 1998. The currency has slumped more than 3 per cent this year, making it one of the worst performers in emerging markets.

Indonesia, one of the region’s darlings just a year ago, is fast losing its appeal with global investors as concerns grow over President Prabowo Subianto’s moves to chip away at the nation’s long-established economic guardrails, and to expand the role of the military in civil society.

Prabowo’s populist policy steps since taking office in October, including a roughly US$30 billion-a-year free lunch programme, are pushing the budget deficit closer to its legal limit of 3 per cent of gross domestic product.

“Fiscal worries will likely weigh on the currency” as well as seasonal dividend payment repatriation by foreign investors, said Moh Siong Sim, a strategist at Bank of Singapore. “Expect Bank Indonesia to continue to curb excessive rupiah volatility ahead of likely Apr 2 tariff announcement by the US.”

The nation’s equities have plummeted this year and entered a bear market in February as foreign investors pulled out more than US$2 billion. Indonesian bonds have underperformed US Treasuries, with the spread between benchmark 10-year notes near their widest since September.

Bank Indonesia kept its policy rate unchanged in March as it seeks to safeguard the currency. The central bank has repeatedly intervened in the markets this year, while the government implemented a rule forcing commodity exporters to keep their foreign currency earnings onshore. BLOOMBERG