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

Late August to early September saw rapid USD/IDR depreciation to almost 15,000 level, although the pressure on Rupiah has somewhat receded for now. This sharp Rupiah depreciation and deterioration in market sentiment is caused by external pressures. The contagion effect from currency crisis in Turkey and Argentina and recession in South Africa caused global investors to exit emerging markets and move their money to safe haven assets.  Moreover, escalation of trade war between United States and China put additional pressures on Rupiah. We see that Bank Indonesia’s credibility in its stabilization pledge is sufficient enough to avoid risks of currency crisis like Argentina, Turkey, or South Africa. Nevertheless, as external pressures and persistent current account deficit remain, BI should continue to anticipate potential market volatility by increasing its policy rates in the coming meeting.

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