Economist Assesses Rupiah Weakness Near Rp17,000 as Temporary
Jakarta — The chief economist at Trimegah Securities Indonesia, Fakhrul Fulvian, believes that the rupiah’s depreciation approaching the level of Rp17,000 per US dollar is merely temporary and is influenced more by global dynamics than by the state of Indonesia’s domestic economic fundamentals.
Speaking in Jakarta on Tuesday, Fakhrul said the rupiah frequently experiences phases of overshooting before returning to find its equilibrium point.
According to him, geopolitical turmoil, rising energy prices, and strengthening of the US dollar cause financial markets to react more rapidly than underlying economic fundamentals. “In conditions of global shocks like the present, financial markets typically react faster than economic fundamentals. That is why we often see the rupiah weaken first,” he said.
As noted, the rupiah exchange rate at the opening of trading in Jakarta on Tuesday moved stronger by 63 points or 0.37 per cent to Rp16,886 per US dollar.
Fakhrul explained that a number of core domestic economic indicators remain in relatively good condition, ranging from sustained economic growth, controlled inflation, to stability in the financial sector. “If we look at the basic indicators of the economy, growth that remains intact, inflation that is relatively controlled, and financial sector stability that remains good, Indonesia’s economic foundation is actually still quite strong,” he said.
In several previous periods, the rupiah has frequently demonstrated the ability to strengthen again after phases of considerable weakening when external pressure begins to ease. “Financial markets often move too far in one direction. In several previous episodes we saw the rupiah could overshoot first, but when global sentiment begins to stabilise and dollar inflows resume, its strengthening could also be quite rapid,” he explained.
Further, Fakhrul viewed the government’s move to strengthen the export-generated foreign exchange (DHE) policy as the correct direction to bolster foreign exchange (forex) liquidity domestically. The DHE policy is considered important because it strengthens forex liquidity within the country. With the obligation to place DHE domestically, Indonesia’s forex market structure could become deeper and more stable.
However, he emphasised that rupiah stability does not depend on one policy alone. In a global situation filled with uncertainty, monetary policy tends to have a more cautious bias. “When energy prices rise and global pressure increases, room for policy easing typically becomes narrower. That is why the market will also be waiting to see how fiscal and monetary policy coordination proceeds,” Fakhrul said.
He assessed that policy coordination is an important factor in maintaining market confidence. The government also needs to maintain consistency in the economic policy framework to keep the exchange rate stable.
Fakhrul added that pressure on the rupiah could become more sustained if global turmoil persists too long and begins to affect domestic inflation expectations or bond market stability. However, as long as domestic economic fundamentals remain intact and policy coordination proceeds well, the current rupiah depreciation is viewed as more of a market adjustment to global pressures. “Historically, the rupiah has indeed often faced pressure first when the world is turbulent. But when external pressure begins to ease and the market views economic fundamentals more clearly again, the rupiah also has the capacity to recover faster than many people expect,” he said.