Indonesian rupiah hits record low as dollar rally and political turmoil weigh
EWG•The rupiah fell to a record 18,250 per dollar despite central bank intervention, pressured by a dollar rally and political uncertainty after Vice President Gibran Rakabuming Raka submitted his resignation. It has lost more than 8.5% this year, and markets widely expect another rate hike at next week’s Bank Indonesia meeting.
1. Rupiah hits new low
The Indonesian rupiah slid to an all-time low of 18,250 per dollar in afternoon trading on Thursday, even after the central bank said it had intervened in foreign-exchange markets to support the currency. A dollar rally on bets of steeper Federal Reserve rate hikes and uncertainty following Vice President Gibran Rakabuming Raka’s resignation added pressure.
2. Political and market pressure
Uncertainty over the government’s flagship programmes, including free school meals, volatile oil prices amid the Middle East conflict, and an MSCI warning of a possible downgrade of Indonesia’s emerging-market status further clouded the currency outlook. MSCI also removed Barito Pacific from its global standard index, a move expected to prompt selling by passive funds tracking the benchmark.
3. Regional markets retreat
Markets widely expect another rate hike at next week’s Bank Indonesia meeting. The central bank raised rates by 100 basis points between May and June, and the rupiah has lost more than 8.5% this year. Elsewhere, the Philippine peso fell as much as 0.7%, the Malaysian ringgit weakened to 4.0820 per dollar, and the Thai baht hit a more than one-week low; South Korean and Taiwanese shares fell as Nvidia concerns weighed on technology stocks.
