The rupiah fell to a four-year low as investors lifted arbitrage deals in emerging markets, prompting the Bank of Indonesia to act in support of the exchange rate.

The Indonesian rupiah fell 0.5% on Wednesday to IDR 16,293 per dollar, the lowest level since April 2020. It also caused this currency, which has one of the highest yields in Asia, to fall below the level in April when the Bank of Indonesia unexpectedly raised interest rates to contain the decline in the exchange rate.

The Bank of Indonesia intervened on Wednesday in the spot and domestic unprincipal delivery forward markets to stop the decline in Indonesian rupiah, Edi Susianto, executive director of currency and securities asset management at the Bank of Indonesia, said. He said that the central bank will ensure a balance between foreign exchange supply and demand by entering the market.

Bank Indonesia Governor Perry Warjiyo also reiterated on Wednesday that efforts will continue to keep the Indonesian rupiah stable and contain foreign capital outflows at a time of market turmoil. Seasonal dividends and outflows of pilgrimage funds, combined with a narrowing trade surplus, are putting pressure on the Indonesian rupiah. The Indonesian rupiah was the worst performing Asian emerging market currency this quarter other than the Philippine peso.

Moh Siong Sim, a foreign exchange strategist at the Bank of Singapore, said that since Indonesian companies' dividend payments will continue until mid-July, the local capital flow situation faced by the Indonesian rupiah is still quite challenging in the short term.

Warjiyo said that the Indonesian rupiah is likely to stabilize in the future and is expected to strengthen the range of IDR 15,300 to IDR 15,700 to the US dollar next year. Traders are waiting for this week's key US data, including non-farm payrolls data, to guide the trend of the Indonesian rupiah, which is one of the Asian currencies that are more sensitive to the trend of the US dollar.

“We are cautious about the upward risk of the USD/IDR exchange rate to prevent the dollar from rebounding,” said Alan Lau, a foreign exchange strategist at Maybank in Singapore. “On the other hand, we do recognize that if the data released by the US continues to be weak, it may weaken the dollar and ease the pressure on the Indonesian rupiah.”