Impact Of Weakening Rupiah And BI's Interest Rate Hike On Indonesia's Textile Industry

The Association of Indonesian Filament Yarn and Thread Manufacturers (APSyFI) is assessing the repercussions of the recent weakening of the rupiah and Bank Indonesia's decision to raise the benchmark interest rate on the production costs of the textile and textile product (TPT) industry.

APSyFI Chairman Redma Wirawasta revealed that the industry is facing an additional burden of around 5 percent on production costs. "The impact on production costs could be around 5 percent," stated Redma in an interview (12/11).

According to Bloomberg, the exchange rate of the rupiah is recorded at Rp 15,695 per USD 1. The central bank, Bank Indonesia (BI), increased the benchmark interest rate to 6 percent from the previous 5.75 percent, responding to various factors such as the projected slowdown in the global economy and geopolitical tensions.

Redma further explained that the impact arises because the industry relies on imported raw materials and auxiliary materials. Particularly, around 90 percent of raw materials and auxiliary materials are imported.

"The increase in interest rates and the depreciation of the rupiah add pressure to the TPT sector because some raw materials are imported, and auxiliary chemicals are almost 90 percent imported. The rising interest rates further increase costs," clarified Redma.

As a result, Redma mentioned that the industry cannot expect much growth this year. He predicts that the TPT sector will continue to experience sluggish growth throughout the fourth quarter of 2023 and the entire year.

Moreover, he highlighted that the average utilization of the TPT industry is declining, currently falling below the 50 percent mark. Redma observed that the political dynamics in the country have not significantly impacted the TPT sector, as there is still no substantial demand related to political agendas or general consumer demand.

"There is no increase in demand as the local market is still saturated with imported goods. The political year has not shown any signs of significant demand growth," he stated.

It is worth noting that since the Ministry of Industry launched the Manufacturing Industry Confidence Index (IKI) in November 2022, the TPT industry has continued to be a contracted subsector within the manufacturing industry. The IKI uses 50 as a neutral level, with values above indicating expansion and values below indicating contraction or slowdown