Thursday, October 28, 2021

Factors Causing the Weakening of the Rupiah

The rupiah exchange rate against the dollar is always changing, sometimes it weakens, sometimes it can strengthen.




Why it can be weak and strong of course both have their own reasons, but this time we will discuss the causes of the weakening of the rupiah.


The weakening of the rupiah exchange rate causes the prices of goods to rise, in addition to having an impact on basic needs, it can also have an impact on transportation prices which can also increase.


The investment strategy undertaken can also be affected by the weakening of the rupiah exchange rate, because some investment instruments are largely determined by the value of the rupiah.


Sometimes the rupiah may strengthen, but this is not directly proportional to the dollar which is getting stronger and suppresses the rupiah.


Although business growth in Indonesia is growing, it is not enough to help the economy improve. The following are some of the factors causing the weakening of the rupiah against the dollar.


1. America's economy is booming


 This factor is very influential with the weakening of the rupiah exchange rate, to restore the US economy after the 2008 crisis, making the central bank in America, namely the Fed, plans to carry out a system called tappering off or quantitative reduction. This easing is known as economic stimulus.


This plan was continued and in 2013 made the US dollar strengthen in the global arena, so that the supply of dollar money would decrease.


The opposite effect is experienced by Indonesia as a developing country, but Indonesia is very easily depreciated by the influence of foreign currencies that suppress it.


In addition, the rupiah is a soft currency, meaning that the rupiah is very sensitive to the international economy.


2. Pressured by the Fed


The Fed as the central bank of the United States has plans to cut and limit bond purchases in 2013, the exchange rate of the rupiah and the JCI, which is often referred to as the composite stock index, fluctuated very sharply with each other.


This will certainly have a major impact on the American economy because the road to recovery will seriously disrupt the world's financial traffic.


3. The sluggishness and decline of Indonesia's export commodities


The decline in demand for export goods from various parts of the world will cause the Indonesian economy to be disrupted.


In short, if the number of exports decreases, the rupiah will weaken. What the government must immediately do to improve the rupiah is to increase the demand for world exports.


If export demand falls further, the trade balance will also deteriorate.


4. Imports of goods are getting higher


When the demand for export goods decreases, it is inversely proportional to the increase in demand for imported goods from abroad. This is the fault of the people themselves who trust foreign goods more than their own domestic products.


In fact, if we understand that domestic goods are no less good in quality than foreign goods, moreover there are not many foreign producers who make their goods using raw materials from Indonesia.


If imports continue to increase, the economy will weaken and the rupiah exchange rate will continue to decline. If this happens, people often complain and blame the government because Indonesia's financial condition is in shock but still consumes foreign-made goods.


In fact, according to research, consumption of imported goods made abroad has increased over the past six years and has kept the domestic balance under pressure.

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