MACROECONOMIC ANALYSIS SERIES: BI Board of Governor Meeting, August 2018

Rupiah’s depreciation to Rp14,600 is driven by confluence of external factors, particularly contagion effect from Turkish Lira’s rapid depreciation throughout emerging markets.   Additionally, market still take into account risk of reduction of global growth due to trade war between US, China, and EU, and its negative implication on Rupiah’s exchange rate. We see strength of Indonesia’s economic fundamentals  and credibility of BI’s promise to defend exchange rate stability prevent Rupiah from experiencing rapid depreciation like other more vulnerable emerging market currencies. Nevertheless, external risks and widening current account deficit makes increase in benchmark rate  this Wednesday necessary.

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