Moody’s warns of economic impact from weaker rupiah

“Current rupiah depreciation is much less than the 31.6 per cent decline between May and December 2013, but if the negative exchange rate pressure is to persist, there will be implications throughout Indonesia’s economy,” Moody’s said in a statement.
The country had a high ratio of foreign currency debt to total general government debt of 40.1 per cent at the end of 2017, it said, adding that further rupiah depreciation and rising yields would diminish debt affordability.
Indonesia’s ratio of interest payments to revenue of 11.7 per cent is already weaker than the 8.2 per cent median for Baa-rated sovereigns, according to Moody’s.
Last Tuesday, Indonesia’s government bond spiked by nearly 30 basis points to 7.3 per cent, but retreated to 7.2 per cent at the end of the week, while the rupiah extended its decline for the third consecutive month in May, depreciating 4.1 per cent since January.
It says that these market developments will have a credit-negative effect on the government’s fiscal metrics and weigh on debt affordability.

risks 
“Currency depreciation raises the risk of higher imported inflation, and because the currency declines reflect outflows of portfolio capital, they may signal underlying balance-of-payment challenges through a drop in foreign-reserve buffers, it adds.
Indonesia’s net debt inflows year-to-date through April have slowed to less than $1 billion from $6 billion a year earlier, the result of rising US bond yields and a stronger dollar.