Rupiah Weakening Isn't the Worst

Global uncertainty stemming from rising interest rates by the Fed and the threat of trade wars triggered a weakening of global currencies against the US dollar. Several emerging market currencies depreciated against the US dollar throughout 2018, including the Indonesian Rupiah, which weakened to Rp 15,200 per US dollar.

According to data in the 2018 Otoritas Jasa Keuangan (OJK) Year-End Press Release, the Rupiah's exchange rate weakened by 6.42% against the US dollar year-to-date (YTD) until December 18th. This weakening was not the worst compared to other countries. The Turkish Lira, for example, experienced a depreciation of 28.98% against the US dollar, the Brazilian Real (15.07%), the South African Rand (13.59%), the Russian Ruble (13.59%), and the Indian Rupee (9.81%).

The US Federal Reserve (The Fed), which raised its benchmark interest rate four times this year to curb inflation, caused foreign funds to flow out of emerging markets and into the United States. Global uncertainty encouraged fund managers to invest in currencies currently considered safe, such as the US dollar. This led to the weakening of global currencies.