An employee arranges rupiah banknotes at Bank Mandiri in Jakarta on June 23, 2022. Currencies in South-East Asia and around the world have dropped against the United States dollar this year as the Federal Reserve has hiked rates particularly fast. - Antara via Jakarta Post/ANN
JAKARTA, Oct 9 (Jakarta Post/ANN): The decline in the rupiah’s exchange value has had a mixed impact on Indonesian businesses, with many expecting more pressure as input costs rise, while some stand to gain more revenue from customers paying in United States dollars.
The US Federal Reserve’s aggressive interest rate hikes over the past months have prompted investors to shift to assets denominated in US dollars, leading to capital outflows particularly from emerging markets, and prompting the rupiah – like many other currencies – to weaken against the dollar.
The rupiah has depreciated almost 7 per cent year-to-date (ytd) to Rp 15,232 per US dollar, while the currencies of India, Malaysia and Thailand are down 8.65 per cent, 10.16 per cent and 11.36 percent, respectively, against the greenback, according to Bank Indonesia (BI) data as of Sept. 30.
Ariston Tjendra, a trader and forex expert, told The Jakarta Post that many in the market were anticipating a further drop to Rp 15,500 per dollar or lower.
“There is still room for the rupiah to continue depreciating, with the main driver being the rate policy of the Fed, which many expect will make more hikes. BI will need to match the hikes by raising its rate,” Ariston said on Thursday.
Fikri C. Permana, senior economist at Samuel Securities, explained that industries reliant on imported raw materials or capital goods would be among the hardest hit.
In the case of prolonged depreciation, some would pass the burden on to consumers, while others would absorb the extra cost to maintain demand, albeit with lower margins.
Statistics Indonesia data show that machinery and electronic equipment together accounted for almost a third of the country’s imports in the first eight months of this year, while commodities like cereals, sugar and steel also rank in the top 10.
“The rupiah’s depreciation will affect production costs especially [at firms] with imported raw materials. Capital goods like machinery may add to the burden, because substitutes are hard to find,” Fikri told the Post on Thursday.
The situation was worse for companies that had not prepared for the exchange rate risk, such as through hedging or by signing mid- or long-term contracts, he said.
Meanwhile, exporting businesses may reap significant gains, especially those shipping out commodities typically priced in US dollars, like crude palm oil (CPO), coal and other minerals.
The Indonesian Pharmaceutical Association (GP Farmasi) chairman Tirto Kusnadi, among a host of other top business officials, said on Thursday that the industry sourced more than 90 percent of its raw materials from abroad, making it vulnerable to import cost hikes whenever the rupiah depreciated. - Jakarta Post/ANN
