The rupiah exchange rate is currently on the verge of a worrying red zone, almost breaking through the level of Rp17,000 per US dollar. If this figure is actually exceeded, we will no longer be talking about numbers on stock traders' monitors, but a real economic shock that will knock on the door of every household in Indonesia.
Here are five domino effects that we should be wary of if the rupiah continues to depreciate:
1. The threat of imported inflation
When the exchange rate weakens, the prices of goods that we import from abroad automatically become more expensive. This phenomenon is known as imported inflation. Producers who rely on foreign raw materials are forced to raise the selling price of their products in the domestic market to avoid losses. As a result, a general increase in prices (inflation) is inevitable, which will directly erode people's savings and purchasing power.
2. Skyrocketing Prices of Imported Foodstuffs
Household kitchens are the sector that feels the impact the fastest. Keep in mind that many of our food commodities, such as wheat (the raw material for noodles and bread), soybeans (the raw material for tofu and tempeh), and beef, are still highly dependent on imports. If the dollar strengthens, the cost of procuring these food ingredients rises dramatically, leading to price increases in traditional markets and supermarkets.
3. Pressure on Vehicle Installments and Mortgages
Bank Indonesia usually responds to the weakening of the rupiah by raising the benchmark interest rate to maintain currency stability. The knock-on effect? Banks will most likely adjust their loan interest rates. For those of you who are paying installments for a car or motorcycle, or have a mortgage with a floating interest rate, be prepared to face higher monthly bills.
4. Rising Prices of Automotive Components and Home Construction Materials
The manufacturing and property sectors are very sensitive to exchange rates. The automotive industry still imports many engine and electronic components, while the construction sector is highly dependent on the price of iron and steel, which is influenced by global prices. If the rupiah breaks through Rp17,000, the price of new vehicles and the cost of building houses will certainly increase significantly.
5. Increased Risk of Layoffs
The most bitter impact is the potential loss of jobs. Companies with dollar-denominated debt or whose production costs have ballooned due to imported raw materials will experience tremendous pressure on their profit margins. To survive, efficiency becomes the last resort. If operating costs are no longer covered by revenue, the risk of mass layoffs in the manufacturing and retail sectors becomes a real threat.
Source: kompascom
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