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Indonesian Rupiah Affected by China Central Bank’s Interest Cut

From Indonesia Investment

March 2, 2015

The Indonesian rupiah - in line with other emerging Asian currencies - feels the negative impact of China’s interest rate cut. According to the Bloomberg Dollar Index, the rupiah had depreciated 0.40 percent to IDR 12,984 per US dollar at 11:10 am local Jakarta time on Monday (02/03), coming very close to the psychological boundary of IDR 13,000. Last Saturday (28/02), China’s central bank announced to cut its one-year deposit rate and the one-year lending rate by 25 basis points each to 2.50 percent and 5.35 percent, respectively.

It was the second time in less than four months that the central bank of the world’s second-largest economy (People’s Bank of China) cut its benchmark interest rates, in another attempt to boost the country’s sluggish economic growth and combat possibly looming deflation. The central bank’s latest move came a few days before the annual meeting of China's parliament. The People’s Bank of China also raised the deposit-rate ceiling from 1.2 times to 1.3 times, implying that Chinese banks are now able to pay a bigger margin over the central bank’s benchmark. This curbs financial repression that has seen China’s savers effectively subsidize debt-funded investment. China’s yuan depreciated to its weakest level since October 2012 after the central bank’s latest move.

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