CORE: Rupiah intervention needs to be strengthened to prevent impact on inflation

Jakarta (ANTARA) - Economist from the Center of Reform on Economics (CORE), Yusuf Rendy Manilet, believes that the government and Bank Indonesia (BI) need to act more in sync in intervening in the rupiah before its effects spill over to inflation.

Yusuf, when contacted by ANTARA in Jakarta on Wednesday, explained that the rupiah’s weakening has already begun to put pressure on prices, although it is not yet significant and visible in inflation figures.

“Although inflation is currently still relatively low, pressure in the field is starting to be felt, particularly from rising import costs, energy, and distribution,” said Yusuf.

Yusuf noted that Indonesia’s economic structure is still quite dependent on imports of food, fuel oil (BBM), industrial raw materials, and capital goods.

Consequently, rupiah weakening will sooner or later be passed on to the prices of goods and services.

“The impact is usually gradual, not all at once. Initially, producers or distributors try to hold prices, but if the exchange rate remains weak for a long time, price adjustments are almost unavoidable,” he explained.

According to him, the greatest pressure comes from three sides. First, imported food items such as wheat, soybeans, sugar, and their derivatives, which are highly sensitive to the exchange rate.

Second, energy and transportation because non-subsidised fuel prices and logistics costs are also pushed up when the rupiah weakens.

Third, industrial production costs that still rely heavily on imported raw materials, so businesses face rising production costs which can ultimately be passed on to consumers.

He continued that BI’s intervention steps are indeed the main player in keeping the rupiah stable to avoid market panic and creating too broad a domino effect.

However, according to Yusuf, BI’s intervention cannot act alone, especially if fundamental pressures remain unaddressed.

“Because the market also looks at the current account deficit condition, energy import needs, and perceptions of the government’s fiscal space,” he added.

Therefore, he suggested that the government and BI move more in sync.

Yusuf stated that the most urgent interventions at this time are to strengthen domestic foreign exchange supplies, maintain fiscal discipline to keep market confidence intact, and accelerate efforts to reduce import dependency, especially in the energy and food sectors.

He also assessed that the use of local currency transactions with trading partner countries needs to be expanded so that pressure on US dollar demand can ease.

Meanwhile, the rupiah exchange rate at the close of trading today strengthened to Rp17,476 per US dollar from the previous Rp17,529 per US dollar.