Rupiah slips to four-year low on economic woes

PHOTO: Rupiah slips to four-year low on economic woes

SINGAPORE - Indonesia's currency has tumbled to a four-year low, as the rupiah continues to reel from a double whammy of slower exports and capital outflows.

But Singaporeans looking for a cheaper trip to Bali or Bintan may have to wait a while longer.

The rupiah hit its lowest since 2009 against both the greenback and the Singdollar on Monday, and analysts say it is expected to continue sliding for the rest of this year.

The currency has lost almost 10 per cent against the Singdollar in the last 12 months. One Singdollar now buys 8,175 rupiah, compared with 7,570 a year ago.

But travel agencies say the rupiah weakness has made little difference in the number of inbound Indonesians and the number of Singaporeans travelling to Indonesia.

Chan Brothers noted the falling rupiah has not led to cheaper travel for Singaporeans to Indonesia, as fuel charges have been rising.

Ms Yvonne Low, executive director of The Traveller DMC, which handles mainly business clients, also has not seen a drop-off in Indonesian tourists here.

"They are still willing to pay to come to Singapore for medical tourism, or to visit their children studying here," she said.

Economic woes lie behind the rupiah rout. Indonesia's key commodity exports, such as palm oil and coal, are falling on the back of China's slowdown, putting the brakes on economic growth even as inflation climbs.

Indonesia's growth slowed to 5.8 per cent in the second quarter this year, from 6 per cent in the first three months. But inflation surged to a four-year high of 8.6 per cent last month, as the government removed fuel subsidies.

The weakening economy is spooking foreign investors, who are also pulling out of Asia as interest rates rise in the United States amid expectations that the US central bank will reduce its bond-buying programme soon.

Fewer exports and less inbound investment translate into lower demand for the rupiah, and have led to Indonesia's current account deficit widening to a record US$9.8 billion (S$12.4 billion).

As a share of the economy, this amounts to 4.4 per cent - the most since the Asian financial crisis, noted Bank of America Merrill Lynch economist Chua Hak Bin.

Indonesia's central bank is "between a rock and a hard place", said Mr Wu Mingze, market specialist at forex broker Oanda.

"Should they increase (interest) rates to save the rupiah, the economy will worsen quicker, resulting in long-term rupiah weakness," he told The Straits Times.

Bank of America Merrill Lynch forex strategists Christy Tan and Claudio Piron think the rupiah will sink to 10,900 to one US dollar by end-September and to 11,300 at the end of the year. One greenback is now worth 10,380 rupiah, from 9,650 in January.

"We are no longer confident that the Indonesian authorities could effectively contain the risk of rupiah sell-off should this bearish sentiment escalate," they said in a report on Monday.

The rupiah's depreciation is giving a boost to Indonesian businessmen such as Mr Kea Kah Kim, who lives in Singapore but has business operations back home.

"We look at it as favourable as that will help us with our exports," he said. "Our staff also work and live in Indonesia, so we pay them in rupiah. This lowers our operation costs."

But Mr Erman Tan, the chief executive of Asia Polyurethane Manufacturing, said continuous currency fluctuations make it "difficult... to make decisions and do business planning". The company is headquartered in Singapore but has operations in Indonesia.

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