Bank Indonesia Governor Perry Warjiyo has expressed his optimism that the weakening of the rupiah against the US dollar will not continue into 2019, arguing that the external pressures against the country’s currency would slow down.
Perry revealed three factors that would stabilize the rupiah exchange rate next year. First, the United States Federal Reserve would slow down its monetary policy. This year, the US central bank is expected to increase the Fed Fund Rate four times.
“The Fed will likely increase its reference rate only twice next year, or only 0.5 percent,” said Perry in Jakarta on Wednesday as reported by kontan.co.id.
Second, he estimated that global investors would not continue to put their funds in the United States dollar as a result of the declining yields.
Therefore, they would seek alternative investment schemes in emerging countries, including Indonesia, Perry said, adding that next year more capital inflow would recover this year’s foreign exchange shortage.
“Last year, the rupiah appreciated because the foreign exchange outflow of US$17.3 billion as a result of goods and services transactions could be covered by the capital inflow of $29.2 billion. Therefore, we still had a surplus of $11.9 billion [by the end of 2017],” Perry added.
In the first half of 2018, capital outflow for goods and services transactions reached $13.7 billion, while capital inflow from investment only reached $5.4 billion, he explained.
Third, he added, the current account deficit would be narrowed next year due to various efforts by the government to curb imports.