Indonesia's rupiah has fallen to a record low of 18,028 against the US dollar, surpassing the 18,000 mark. This decline is attributed to rising energy costs and pressures from the US-Israel war on Iran.
Indonesia’s rupiah has hit its weakest level ever against the US dollar, breaching the psychological 18,000 threshold amid surging energy costs.
The currency hit 18,028 against the greenback on Thursday, despite recent central bank efforts to provide support.
The energy shock driven by the US-Israel war on Iran has placed a significant strain on energy-importing Southeast Asian economies, particularly Indonesia and the Philippines.
The resulting pressure on trade balances has contributed to capital outflows and weaker currencies.
Gulf hostilities flared again on Wednesday, sending oil prices up more than 1 percent.
Adding to regional uncertainty, the United States has proposed additional import duties of 10 percent or 12.5 percent on goods from 60 economies, including Indonesia, Malaysia and Singapore, over alleged forced labour failures.
Permata Bank chief economist Josua Pardede said that an exchange rate of 18,000 was a “psychological threshold” for market investors.
The weakening, he told the AFP news agency, was fuelled by high dollar demand caused by the spike in oil prices and a narrowing trade surplus.
Indonesia is a net oil importer and is particularly affected by the rising crude costs, though the government insists it will leave subsidised fuel prices unchanged.
The country’s trade surplus has been hammered, narrowing to just $89m in April, from $3.3bn a month before, further reducing dollar supply in the Indonesian market, Josua said.
“Dollar supply from goods trade is dwindling, while dollar needs for energy imports, raw materials, dividends, foreign debt payments and seasonality needs remain significant,” he said.
“This is why the increase in the BI [Bank Indonesia] lending rate and intervention is not enough to reverse the rupiah’s [depreciation].”
The central bank hiked rates by 0.5 basis points to 5.25 percent last month – the first increase in two years – as it looked to stabilise the rupiah and keep inflation in check.
The central bank’s spokesman, Ramdan Denny Prakoso, said on Wednesday that it continued to use “all available policy instruments” to “maintain adequate foreign exchange liquidity”.
Bank Indonesia also tightened rules for dollar purchases.
Since May, buyers of more than $25,000 in a given month have been required to provide supporting documents to justify their need for US currency.
The current exchange rate is 18,028 rupiah for 1 US dollar.
The rupiah's decline is driven by surging energy costs and capital outflows due to trade balance pressures.
The conflict is contributing to increased energy prices, which strain Indonesia's economy as an energy-importing nation.
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