Rupiah’s resilience put to test as Indonesia heads for elections


The rupiah looks poised to weaken heading into 2024, as uncertainty ahead of Indonesia’s national elections in February plays on investors’ minds. The currency may trade around 15,800 a dollar in the first quarter next year, according to BNY Mellon Corp, HSBC Holdings Plc and PT Bank Mandiri. It closed at 15,493 on December 15. Historically, the rupiah has underperformed peers in the run-up to the elections. The concerns this time are also stemming from a change of guard after a decade.
Worries over political stability and policy continuity may weigh on the currency as the nation prepares to choose President Joko Widodo’s successor. “During the past three elections, the rupiah consistently underperformed select EM peers in the four to six weeks prior,” said Joey Chew, head of Asian FX research at HSBC. While the currency “catches up” after an election, the rebound may be delayed as opinion polls suggest a second round of voting in late June will be needed to determine a winner, delaying inflows, she said.
The impact is already visible on the rupiah, which has gone from being Asia’s best performer earlier in the year to weaken the most against the dollar this quarter. The rupiah has fallen nearly 0.3% during the period despite a weaker greenback. In contrast, the MSCI Emerging Market Currency Index saw a gain of about 3.5%.
While foreign investors have pulled out nearly $600 million from Indonesian equities since October, inflows of about $900 million in bonds provided a cushion. The outlook, however, doesn’t appear bright, with a Bloomberg scorecard showing the nation’s sovereign debt ranking near the bottom among emerging economies. The upcoming elections may decide the rupiah’s trajectory by indicating if the new government will stick to Widodo’s policies, which helped lift the nation’s export earnings and trim the current account deficit, supporting the currency.

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