As Indonesia approaches its national elections in February 2024, concerns about the resilience of the rupiah are rising among analysts, who anticipate a potential weakening trend in the currency. According to a Bloomberg report, BNY Mellon Corp., HSBC Holdings Plc., and PT Bank Mandiri are projecting the rupiah to trade around 15,800 against the dollar in the first quarter of the coming year. This projection is based on historical trends, with the rupiah historically underperforming compared to its emerging market peers leading up to elections.
The upcoming elections are crucial for the rupiah’s trajectory, as the country is on the brink of selecting a successor to President Joko Widodo after his decade-long tenure. The historical underperformance of the rupiah in the four to six weeks prior to elections is attributed to concerns about political stability and policy continuity. The uncertainty surrounding the change of leadership has already impacted the rupiah’s performance, making it Asia’s best performer earlier this year but witnessing the most significant weakening against the dollar this quarter.
Foreign investors have withdrawn nearly $600 million from Indonesian equities since October, but the currency received some support from inflows of about $900 million in bonds. However, Indonesia’s sovereign debt ranks near the bottom among emerging economies in Bloomberg’s scorecard.
The election results will play a crucial role in determining the rupiah’s trajectory, with analysts assessing whether the new government will continue President Widodo’s policies that supported export earnings and reduced the current account deficit. While leading candidates Prabowo Subianto and Ganjar Pranowo pledge to continue Widodo’s economic policies, rival contestant Anies Baswedan has expressed intentions to revisit some, including plans for a new capital.
President Widodo, also known as Jokowi, will complete his 10-year term next year, and the official declaration of the winner is expected in March. However, a runoff poll in June could occur if no candidate secures more than 50% of the votes. Analysts highlight potential risks from an extended lag between elections and the formation of a new government, exposing the rupiah to policy uncertainty. The central bank is expected to remain on hold through the elections, providing a buffer against political uncertainty in the months ahead, according to Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon.
Post Your Comments