Six months ago, a person from Singapore going on holiday or investing in Indonesia would get 7,800 rupiah for every dollar. Today, he would get 9,640 rupiah - a 24 per cent jump.
The steadily sliding value of the rupiah, which breached another psychological barrier of 12,000 rupiah to the United States dollar on Thursday last week, has driven up prices of imported goods.
But a weakened rupiah also has a silver lining: It has helped South-east Asia's largest economy reverse a ballooning trade deficit late last month.
Bank Indonesia's (BI) strategy of tolerating rupiah weakness helped rein in imports, as rising prices shrank demand for electrical appliances and consumer goods.
Central Statistics Agency chief Suryamin said the weak rupiah also helped Indonesian products abroad become more competitive.
Hence it was no surprise that the central bank decided against raising interest rates when it met last Thursday.
Bank Indonesia spokesman Difi Johansyah told reporters the rupiah was a little undervalued, but added "it is seasonal".
He explained that many companies pay off their debts in dollars at this time of the year, hence the demand for dollars. A US dollar was worth 12,100 rupiah at the end of on Monday.
"Next year, the pressure on the rupiah will be off. We just need the right sentiment," he said.
Business owners can only hope this will be the case. For now, they are tightening their belts.
Mr Leonardus Hanjoyo, a director of tea and bottled mineral water producer Teh 2Tang, told The Straits Times sales are down.
Meanwhile, production costs are up as a lot of raw materials for packaging is imported.
"Sixty per cent of our production cost is from packaging. We are thinking of passing on the higher costs to consumers, but it is not that easy - we have to consider consumer buying power and competitors' prices," he said.
While consumer spending overall appears to have dipped, it appears more resilient at the upper end.
A shop attendant at a cellphone store in South Jakarta, Ms Ayu, said the weaker rupiah meant smartphones costing five million rupiah have to be sold for between 300,000 and 500,000 rupiah more. Sales are down by some 10 per cent over the past month.
But at a higher-end smartphone shop that sells iPhones and iPads, among other things, at a mall specialising in computer equipment, sales are steady, in spite of rising prices.
"Many of our customers are office workers who visit during their lunch break," said store owner Samuel.
For its part, BI has been aggressive in absorbing rupiah liquidity by selling debt notes in a bid to curb the rupiah's weakening.
It also raised the benchmark interest rate by a total of 1.75 percentage points since the middle of this year to 7.5 per cent, but economists and politicians have criticised this because it imposes higher financing costs on businesses.
Banks have also reacted by chasing funds so they can make more loans.
In recent weeks, they have taken to offering lucky draws with prizes ranging from Range Rovers and Mercedes-Benz S class cars to free holidays to entice new customers to open savings accounts and time deposits, as well as to keep existing customers.
Mr Jean-Francois Tremblay, an associate managing director at Moody's Ratings, said more aggressive banks are chasing deposits to stay ahead.
"They would likely have no choice but to raise rates, give perks for opening of deposits... and could experience a more pronounced contraction of their profit margins than their more prudent competitors," he said.
BI governor Agus Martowardojo has also urged Indonesians holding excess dollars to release them to prevent a further slide in the rupiah.
"There is a supply of dollars but it is not enough," he said, "so that supply and demand can match each other."
BI said it will create instruments to enable exporters to place their dollar revenues onshore.
The central bank said it will soon launch a swap facility, with which exporters can convert their dollars into rupiah, and be entitled to convert the funds back into dollars at a later date, at a predetermined exchange rate, shielding the exporters from currency volatility.
Many welcomed BI's latest decision to hold off on raising interest rates.
Parliament Speaker Marzuki Alie said the weakening rupiah should be addressed by fiscal policies, instead of monetary policies.
"We need to start thinking what incentives we can offer companies to make them more competitive and in turn they can help boost exports," he said.
University of Indonesia economist Muliadi Widjaja is on the same page, saying: "Raising the interest rate would not do good to the economy... at a time when it needs companies to be competitive and not be burdened by larger financing costs."
wahyudis@sph.com.sg
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