Jakarta. The rupiah exchange rate has dropped to its lowest point since the Covid-19 pandemic, driven by global economic uncertainties and the ongoing strengthening of the US dollar. The central bank unexpectedly hiked its interest rate to stabilize the exchange rate.

On Friday, the Rupiah's exchange rate hit its lowest point since the Rp 16,100 level seen in April 2020. According to Refinitiv data, the rupiah weakened by 22 points, a 0.14 percent decline to Rp 15,832. Rupiah transactions today ranged from Rp 15,830 to Rp 15,848 per dollar.

Bank Indonesia (BI) increased the benchmark interest rate, known as BI 7-Day Reverse Repo Rate (BI7DRR), by 25 percentage points, bringing it to 6 percent. Additionally, the deposit facility interest rate was raised by 25 percentage points to 5.25 percent, and the lending facility interest rate also saw a 25 percentage points increase to 6.75 percent. This decision was made during the Bank Indonesia's meeting held on October 18-19, 2023.

BI Governor Perry Warjiyo explained that the decision to increase BI7DRR was aimed at reinforcing Rupiah's exchange rate stabilization strategy, in light of escalating global uncertainties. This proactive approach is intended to preemptively address potential imported inflationary effects. BI's primary goal is to maintain inflation within the target range of 3 percent plus minus 1 percentage point for the year 2023 and 2.5 percent plus minus 1 percentage point for next year.

Perry emphasized that the strength of the US dollar has put pressure on the depreciation of other countries' currencies, including the rupiah. The US dollar exchange rate index against major currencies (DXY) as of October 18, 2023, is at 106.21, marking a 2.6 percent year-to-date (YTD) increase.

The Head of Research and Analysis Division at PT Monex Investindo Futures (MIFX)  Ariston Tjendra suggested that the Rupiah could face further depreciation against the US dollar, primarily in response to signals of a potential interest rate hike by the US Federal Reserve.

"Last night, US Federal Reserve Chairman Jerome Powell signaled that a high-interest-rate policy is still necessary to lower US inflation to 2 percent. However, Powell also indicated that The Fed is not in a rush to raise the benchmark interest rate again because the high bond yield in the US has already helped dampen inflation," Ariston said on Friday.

Furthermore, ongoing tensions in the Middle East are a concern for the market, which has driven market participants to seek safe-haven assets, such as gold and the US Dollar.

The exchange rate of the Rupiah against the Euro weakened by 0.05 percent to Rp 16,737.59 on Friday, against the Pound Sterling, it decreased by 0.08 percent to Rp 19,210.55, against the Yen, it fell 0.09 percent to Rp 105.65, against the Australian dollar, it strengthened by 0.05 percent to Rp 9,999.49, and against the Singapore dollar, it weakened by 0.1 percent to Rp 11,527.6.

The US Dollar Index (DXY), which tracks the greenback against major world currencies, is at 106.27, a 0.02 percent increase compared to the previous position.