Jakarta. Bank Indonesia said Thursday that surging US Treasury yields, oil prices above $100 a barrel, and renewed expectations of tighter US monetary policy were putting pressure on the rupiah as the currency weakened toward Rp 17,900 against the US dollar.

Erwin Gunawan Hutapea, Bank Indonesia's executive director and head of the Monetary and Securities Asset Management Department, said concerns over global inflation and the US fiscal outlook had strengthened expectations of tighter monetary policy in the world's largest economy.

Those concerns pushed the benchmark 10-year US Treasury yield to 5.11%, its highest level since 2007, he said.

“The rupiah's weakening has been influenced by expectations of tighter US monetary policy amid concerns over global inflation and the fiscal outlook,” Erwin said.

Market data showed the 10-year Treasury yield at around 5.11% after jumping more than 15 basis points, while the US Dollar Index also strengthened.

Erwin said uncertainty surrounding the conflict in the Middle East was adding pressure by raising concerns over global oil supplies.

Brent crude climbed back above $100 a barrel, with the international benchmark trading at around $103 on Thursday amid renewed geopolitical tensions.

“Pressure is also coming from uncertainty surrounding the Middle East conflict, which has increased concerns about global oil supplies, pushing Brent crude back above $100 per barrel,” Erwin said.

Higher oil prices can present an additional challenge for Indonesia, which relies on crude oil and petroleum-product imports to meet part of its domestic energy demand.

On the domestic side, Erwin said the rupiah was being pressured by increased foreign-exchange demand from importers ahead of the end of the third quarter as well as portfolio outflows from emerging-market assets.

The rupiah weakened toward Rp 17,900 per dollar during Thursday trading. At 1:16 p.m. Jakarta time, the currency was quoted at Rp 17,903 against the dollar, down around 0.48%.

BI Steps Up Market Intervention
Bank Indonesia said it would continue intervening in financial markets to keep the rupiah aligned with economic fundamentals and ensure orderly market functioning.

Intervention is being conducted through non-deliverable forwards (NDF) in offshore markets, spot transactions and domestic non-deliverable forwards (DNDF), as well as purchases of government securities in the secondary market.

The central bank is also strengthening communication and coordination with corporations and financial-market participants.

Despite the latest depreciation, Erwin said the rupiah remained broadly in line with the movement of regional currencies and was still up 0.46% quarter-to-date.

Indonesia's foreign-exchange reserves, meanwhile, increased to $146.5 billion at the end of August, providing the central bank with additional resources to support currency stability.

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