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Indonesia’s Rupiah Value Declines

Indonesia’s Rupiah Value Declines
July 01
18:48 2014

As Indonesia’s rupiah declines the central bank is taking stern steps to close the loopholes being utilized by traders worldwide from further exploiting its weakening currency. It is imperative for the government to prevent further depreciation of the rupiah as it would lead to national panic. Domestic banks in Indonesia have been reminded that they are not allowed to experiment with the rupiah further by avoiding investment in offshore accounts.

In an attempt to control the rupiah’s fall the Central bank has been selling dollars at a steady rate limiting the decline rate at 0.5 percent. But, any efforts to prevent the decline of rupiah permanently so far have been futile. Indonesia also has other trouble brewing for it such as the pending import bills, there is also a growing concern over the rupiah’s constantly losing hold against the dollar. The last reported metrics stated that rupiah lost around 6 percent against dollar in 2012.

The government and the central bank continue to intervene and work on various incremental and disruptive innovation techniques to stabilize the currency market and reduce the pressure on dollar supply.

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Surprisingly economic pundits predict that based on the prevailing trends there will be a slow drift down for the rupiah instead of the abnormal swings that are currently being observed. If you try looking at the root cause of all this chaos it is simply the rapid pace of investment and economical consumption resulting in a very high rate of import and eventually a decline in rupiah’s value. To make matters worse the demand for Indonesia’s typical exports such as coal export has steadily declined as the world looks towards alternate energy sources.

Currently with inflation within the admissible ranges as defined by the Central bank of Indonesia they still have the option to let the rupiah decline steadily instead of a drastic fall with huge repercussions. The trick would be to keep the decline at a steady pace so that the foreign investors are not panicked and continue to keep their investment and faith in the Indonesian economy. Historically two signs have been troubling for the foreign investors:

Extreme volatility – Which has been the recent case and is being controlled by the Central bank through careful measures.

Further fall in rupiah value beyond the historical low figure of more than 7% a year.

The good news is that the foreign investors continue to show their trust in the Indonesian market place and the analyst’s prediction for the rupiah’s depreciation is stable.

Indonesia’s Rupiah Value Declines - overview
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Articles on the Jadenforex blog written by "Jadenforex" include guest posts, and items written in collaboration with several authors.

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