Bank Indonesia (BI) has announced its readiness to curb any excessive volatility in the Indonesian rupiah as early indicators show an unexpected edge for former U.S. President Donald Trump in the presidential election race. This initial lead has fueled the U.S. dollar’s strength and sent ripple effects through emerging markets, prompting heightened alertness from Indonesia’s central bank.
“BI will always monitor the exchange rate movement of the rupiah and other currencies, and will certainly make various efforts to stabilize the exchange rate if there is an excessive increase in volatility,” explained Fitra Jusdiman, Director for Monetary and Securities Asset Management at BI, in a statement on Wednesday. BI’s primary objective remains to ensure currency stability amid the uncertainties surrounding the U.S. election.
The Indonesian rupiah has already declined by 0.6% to 15,828 per U.S. dollar, marking its lowest level in nearly three months. Jusdiman noted that this depreciation aligns relatively closely with current forecasts and the general performance of Asian currencies as the market reacts to Trump’s early lead in vote counts.
To counter potential turbulence, BI has indicated it will deploy a “triple intervention” strategy, a policy that has proven effective in the past. This includes targeting the foreign exchange spot market, domestic non-deliverable forwards (NDFs), and the secondary government bond market. By intervening across these three areas, BI aims to mitigate the impact of extreme fluctuations and keep the rupiah within an acceptable range, minimizing spillover into the broader economy.
The focus on the NDF market, in particular, underscores BI’s efforts to curb speculative movements that often exacerbate volatility. Secondary government bond market interventions allow BI to manage liquidity within the bond market, indirectly supporting the currency by stabilizing interest rates and protecting the balance of payments.
The U.S. presidential election outcome holds significant implications for the global financial landscape, particularly for emerging markets like Indonesia. The possibility of a Trump presidency has brought concerns about higher tariffs and a potential dampening effect on global trade flows, factors that could impair economic growth prospects globally.
“BI has anticipated various scenarios of the U.S. presidential election results and has also prepared mitigations for their potential impacts,” Jusdiman noted. The central bank’s preparation reflects its acknowledgment of the complex interplay between the global political climate and domestic economic stability.
For Indonesia, maintaining a stable rupiah is critical to preserving investor confidence and sustaining import prices, both of which are essential for growth in an economy still grappling with a post-pandemic recovery. The rupiah has already depreciated by 4.4% this quarter, with the U.S. election uncertainty adding yet another challenge to Indonesia’s monetary policy landscape.
The current situation may compel BI to reconsider its stance on monetary policy easing, potentially pausing its recent campaign to lower interest rates. Citigroup Inc. and Barclays Plc are among the institutions projecting that BI might delay further easing at its upcoming policy meeting on November 20, despite indicators such as slowing inflation and weakening manufacturing growth, which traditionally support rate cuts.
Helmi Arman, a Citi economist, commented in a Tuesday note, “BI has in the past two meetings mentioned that growth ‘needs to be supported,’ but interest rate policy still hinges largely on the balance of payments outlook — which currently is driven more by global market developments, especially awaiting the outcome of the U.S. election.” Arman anticipates a potential 25-basis point cut by December if conditions stabilize.
Indonesia’s manufacturing sector remains sluggish, while inflation rates have been steadily declining, factors that would typically incentivize an interest rate cut. However, a highly volatile external environment, primarily driven by U.S. dollar strength and potential trade policy shifts, complicates BI’s decision-making process.
In light of the election uncertainty, BI’s options are somewhat limited. While a lower interest rate could stimulate domestic demand, increase investments, and revitalize the economy, BI’s primary mandate of maintaining a stable currency could force a more conservative approach.
In a recent note, PT Bank Maybank Indonesia highlighted the risks of a prolonged rate pause. “A significantly lower BI rate will support domestic demand activities that have substantial impacts for the economy,” the note said, underscoring the importance of accommodative policies in reviving sectors hit hardest by the economic slowdown. Nevertheless, BI must weigh these growth needs against the risk of currency instability, especially under current circumstances.
