Jakarta, CNBC Indonesia – The bad luck has plagued the rupiah exchange rate in the past week. The Rupiah must be willing to be the worst performing currency in Asia. The potential for recession is escalating to pressure on the Garuda currency.
In the last trade for this week, the rupiah exchange rate weakened by 0.41% against the US dollar and closed at Rp 14,620 / US $. Not only corrected, the rupiah was also the worst-hit currency in Asia in yesterday’s trade.
The deteriorating performance of the rupiah actually began to appear at the beginning of this week. The rupiah exchange rate continues to move away from Rp. 14,000 / US $. In the end, the rupiah had to depreciate 1.8% and become the most miserable currency in the Yellow Continent.
Bad news from within the country is indeed going back and forth this week. The news about the potential of RI entering the recession made the rupiah began to be abandoned.
The increase in the number of new cases of Covid-19 infection in Indonesia is still high. Instead of decreasing, the number of new cases actually fluctuates tends to rise. The case in DKI Jakarta also surged.
The increase in cases ultimately led DKI Jakarta Governor Anies Baswedan to decide to extend the period of Large-Scale Social Restrictions (PSBB) for the next 14 days. If the development of the case never improves, it is quite possible an emergency brake policy (emergency brake) will be taken by DKI Jakarta.
PSBB clearly has consequences, because the mobility that builds the economy is limited. Economic activity could be suspended again after some time of writhing. The recession is opening up even more.
The case in Indonesia that continues to rise is also in the spotlight by the World Bank. Previously, the international financial institution estimated that the Indonesian economy would not grow this year, assuming the outbreak had started to run in July or August.
But if these assumptions are not met, the World Bank estimates that the Indonesian economy will experience a contraction of -2% in 2020.
“Indonesia’s economy could have entered a recession if social restrictions continued in the third quarter-2020 and fourth quarter-2020 and / or the world economic recession was worse than previously estimated,” the World Bank report said.
Previously, the Minister of Finance, Sri Mulyani Indrawati, previously estimated that the April-June economy would contract in the range of -3.5% to -5.1%.
While GDP in the third quarter of 2020 was forecast in the range of -1% to 1.2%. That means there is indeed a risk that Indonesia will experience a recession in the third quarter of 2020.
July is the beginning of the third quarter of 2020, if the PSBB transition continues, meaning that not all economic sectors have been opened yet, then there is a risk of economic growth minus. Understandably, DKI Jakarta contributes 29% of the national gross domestic product (GDP) in 2019.
So if GDP is reduced again in the third quarter of 2020, then Indonesia will officially experience a recession, given that economic growth in the second quarter of 2020 is projected to experience a contraction.
To save the economy from collapse, Bank Indonesia (BI), as the country’s monetary authority, again cut its benchmark interest rate by 25 basis points (bps) this July, so that the BI 7 Day Reverse Repo Rate is at 4%.
Although trimmed again, a low inflation rate of under 2% and a 10-year tenor bond yield of 7% keeps the real interest rate at 500 bps. It is still better than the real interest rates of the US and other emerging market countries so that it can encourage inflow.
Going forward BI’s focus will probably be to use toolbox Other monetary measures are through quantitative easing (QE), rather than fiddling with the benchmark interest rate. This is reflected in the direct statement of BI Governor Perry Warjiyo.
“What is the interest rate policy going forward, we will see how the pattern of economic recovery and its impact on inflation. During the Covid-19 pandemic period we must pay close attention to the latest data to respond to interest rates,” said Perry.
Perry emphasized that in the current condition economic recovery is more effective through quantity channels, namely how from the aspects of liquidity and funding, such as quantitative easing that has been done by BI.
CNBC INDONESIA RESEARCH TEAM
