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Mirza: The weakening of the Rupiah this week was triggered by global factors

Jakarta -Bank Indonesia Senior Deputy Governor Mirza Adityaswara said the weakening of the exchange rate this week was due to global factors, one of which was the sentiment of the US-China trade war that had not yet subsided.

“The interpretation of the US and Chinese trade war markets has not subsided. Yesterday there was a Huawei director in Canada who was arrested and will be extradited to the US. That reflects the US and Chinese trade war has not subsided,” Mirza said on Friday (07/12/2018).

In addition, the market is worried that trade wars will slow the growth of the world economy. The market conditions were compounded by other concerns related to the response from China’s central bank which was suspected of carrying out yuan depreciation. Of course, this policy will trigger further depreciation of exchange rates in developing countries.

From the stock market itself, the market simply reacts by signaling a slowdown in US economic growth that can reduce the growth of corporate profits in the US. “So the stock market reacts, so we see the last few days there have been stock sales in the global and there have been stock sales in the US,” Mirza said.

This condition, said Mirza, spread to the sale of shares in emerging markets including Indonesia. In addition to the US stock market, signs of deceleration arise from the yield curve or curve of US debt that has dropped.

“That’s what is roughly the case, we see why there is a weakening of exchange rates in developing countries. Yesterday had strengthened and weakened, I explained it was due to a global phenomenon,” Mirza said.

Meanwhile, the weakening of the Indonesian and Indian exchange rates is indeed somewhat larger in the last two days compared to other countries’ rates. This, Mirza continued, was due to the current account deficit experienced by both so that the market reacted more.

Therefore, Mirza reminded that Indonesia should not be complacent with the exchange rate strengthening because the issue of the current account deficit must be resolved. “Continue to encourage increased exports, tourism and control of unnecessary imports. But if imports are necessary, such as food, domestic production is lacking,” Mirza said.

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