8 Shocking Effects Rupiah Exchange Rate Dropping Against USD Dollar
The falling rupiah exchange rate against the United States dollar (USD) can have various impacts on the Indonesian economy. Here are some of the impacts:
1. **Inflation**: A decline in the rupiah exchange rate can cause inflation because imported goods become more expensive. This could increase the prices of imported raw materials and consumer goods.
2. **Cost of Foreign Debt**: Governments and companies that have debt in dollars will face higher costs to repay their debt. This is because they have to exchange more rupiah to get the required dollars.
3. **Trade Deficit**: If imports are greater than exports, the trade deficit could become larger because the value of imports in rupiah increases. This could worsen the balance of payments.
4. **Export Competitiveness**: On the positive side, the weakening of the rupiah can increase the competitiveness of Indonesian export products because product prices become cheaper on the international market. This can encourage the growth of the export sector.
5. **Foreign Investment**: Exchange rate instability can make foreign investors hesitant to invest in Indonesia. They may be concerned about the potential loss of the value of their assets in local currency.
6. **Tourism**: A decline in the rupiah exchange rate can attract more foreign tourists as travel and accommodation costs become cheaper for them. This can increase tourism sector income.
7. **Public Purchasing Power**: An increase in the price of imported goods can reduce people's purchasing power. This could cause a decline in domestic consumption and slow economic growth.
8. **Banking Sector**: Banks that have large exposure to foreign debt or that rely on dollar funding may face liquidity pressures and increased credit risk.
