This Causes the High Value of the Dollar Against Rupiah

Baca Juga

Dashboard illustration of rupiah forecasting (Photo: Bahana TCW Investment Management)

Jakarta - The economic crisis and default on Turkish bonds risk suppressing the European economy given that many of its financial institutions have Turkish bonds.

The source of the Bank for International Settlements as of 1Q18 revealed that Spain had an exposure of around 36 percent of Turkish securities followed by France (16 percent), Italy-UK-US (8 percent each) and Germany (6 percent). That is why we witness the weakening of the euro which is read as a strengthening of the US dollar.

The euro itself tends to weaken against the rupiah

Turkey's economic crisis essentially extends the strong cycle of the US dollar which can only be mitigated if the European economy can strengthen as it did during 2017.

Impact on Indonesia

Assuming that Indonesian banks may have no exposure to Turkish securities, the direct impact of Turkey's economic crisis is relatively limited.

However, the Indonesian capital market is generally affected by currency risk related to the strengthening of the US dollar (DXY) and worsening sentiment towards developing countries (as shown by JP Morgan Emerging Market Spreads and CDS).

As seen on the attached dashboard, the two factors also put pressure on the rupiah to exceed 14,500.

We look at two other external factors, namely interest rates and the ratio of cost_to_income commodity prices, which are relatively improved. LIBOR interest rates tend to stagnate when the T-bond yield decreases.

While the decline in oil prices held back the increase in the ratio of cost_to_income commodity price (COMCUAN).

Our model indicates that the rupiah exchange rate will tend to be depressed, thus opening up the possibility that BI will be forced to raise interest rates.

The government should accelerate efforts to exploit the strengthening of the dollar and rising oil energy prices both through the energy substitution policy (B20 biodiesel) and spur tourism.

Until when?

Learning from Indonesia's 1998 experience, healing twin deficits requires an economic slowdown that can trigger a political crisis.

Will it also happen in Turkey? No one knows. Political conflict with the United States can continue if state leaders cannot compromise.

The situation is somewhat heated. President Erdogan's opinion appeared in the New York Times newspaper which threatened to end alliance with the United States.

Economically, the current condition is different from the conditions underlying the 1998 and 2008 crises. When the global economy does not experience a lack of liquidity.

Excess liquidity shown through excess reserve is still relatively massive in the United States and European banking.

It's just that developing countries (which have twin deficits including Indonesia) have to pay more expensive fees.

So far the Indonesian government has carried out differentiation policies including raising interest rates. Just waiting for foreign investors to discriminate between developing countries.

 Source: liputan6.com