Rupiah weakens as dollar index and US bond yields rise

The rupiah weakened by 18 points, or 0.10%, to Rp18,174 per US dollar at the opening of trading on Wednesday, compared with its previous close of Rp18,156 per dollar.

Bank Woori Saudara analyst Rully Nova said the rupiah’s decline was influenced by a rise in the US dollar index and US government bond yields.

“The dollar index and US government bond yields have risen as oil prices have climbed again, although the Federal Reserve is expected to hold interest rates at 4% in its announcement tonight,” he told ANTARA in Jakarta on Wednesday.

Domestic sentiment also contributed to the weakness, amid pressure on the stock market and declining investor interest in Tuesday’s government bond auction (27 October).

He explained that pressure in the bond market was reflected in the 10-year yield rising to 7.55%, while the stock-market index had fallen by more than 40% and capital inflows into the equity market had exceeded Rp125 trillion.

In his view, the government should strengthen the institutions of the Financial Services Authority (OJK) and the stock exchange authority to support market governance, including compliance with free-float requirements.

Bank Indonesia (BI), he said, should pursue a tight-money policy by raising its benchmark interest rate and using other non-interest instruments, such as increasing the statutory reserve requirement (GWM), to curb the rupiah’s decline.

On the basis of these factors, the rupiah is forecast to trade between Rp18,140 and Rp18,200 per US dollar.