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Wednesday, October 7, 2015

Indonesian Rupiah Update: Markets’ Confidence Restored in the Rupiah?, 7 OCT

Indonesian Rupiah Update: Markets’ Confidence Restored in the Rupiah?
Rupiah-Note-Rp-100-000-IDR-Indonesia-Investments
Investors’ confidence in Indonesia’s rupiah restored over the past three days after markets began to believe that the US Federal Reserve has little scope to raise its key Fed Fund Rate this year (due to weak US non-farm payrolls and US ISM non-manufacturing PMI). Bank Indonesia’s role should also be highlighted. Indonesia’s central bank intervened heavily (through currency swaps and by using its foreign exchange reserves) to stabilize and keep the currency from weakening toward and beyond the IDR 15,000 per US dollar level. This tells investors that Bank Indonesia will not allow a worse decline.
Over the past three trading days the Indonesian rupiah appreciated from IDR 14,709 per US dollar on Friday (02/10) to IDR 14,065 per USD on Wednesday (07/10), a 4.6 percent gain (the steepest three-day gain since 2008), reflecting the vulnerability of Indonesia’s currency to (markets’ perceptions of) the US monetary policy stance and also signalling that the rupiah’s drop had overshot on global concern. Indonesia is particularly sensitive to global shocks (such as a Fed Fund Rate hike) as foreign investors hold a large chunk of Indonesia’s assets. Although we should see some profit taking in the days ahead, investors’ restored confidence in emerging market assets and a more stable rupiah should also make Indonesian stocks and bonds more attractive.
In the second quarter of 2015, the rupiah depreciated around 9 percent against the greenback as foreign investors pulled over USD $2 billion from Indonesia’s equities and (local currency) bond markets.
By 10:25 am local Jakarta time, the rupiah had appreciated 2.08 percent to IDR 13,945 per US dollar (based on the Bloomberg Dollar Index). Meanwhile, Bank Indonesia’s benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 2.20 percent to IDR 14,065 per US dollar on Wednesday (07/10).
Indonesian Rupiah versus US Dollar (JISDOR):
The yen appreciated against the US dollar on Wednesday after Japan’s central bank announced that it would not implement more stimulus measures yet (leaving its monetary policy unchanged). This should make the US dollar also somewhat stronger in the rest of Asia.
Meanwhile, Indonesia’s benchmark Jakarta Composite Index extended gains by rising 0.79 percent to 4,481.03 points by 10:28 am local Jakarta time on Wednesday.

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