Rupiah, stocks under selling pressure

Foreign investors’ selling pressure on Indonesian financial assets continued on Monday with the rupiah trading near a seven-month low as investors sought safer instruments amid mounting fears of European debt woes.

The rupiah dropped 1.6 percent to Rp 8,945 against the US dollar as of 3:33 p.m. local time on Monday, according to data compiled by Bloomberg.

Foreign investors, who hold about 60 percent of publicly traded stocks on the Indonesia Stock Exchange (IDX), sold a net Rp 95 billion worth of stocks during the day, pushing the benchmark stock index downward by 2.07 percent or 80 points to close trade at 3,755.05, the exchange’s data shows.

Government and Bank Indonesia (BI) officials calmed investors in the financial markets, saying that pressure on the rupiah is temporary.

“BI will always be in the market, not only to monitor but also to maintain the stability of the rupiah exchange rate,” BI director for economic and monetary policy research Perry Warjiyo told reporters on Monday.

“Movement of the rupiah is heavily affected by what’s happening in Europe,” Perry said, adding that the rupiah would be more stable if the European Union (EU) came out with concrete action to avoid default in some of the grouping’s member nations.

Coordinating Economic Minister Hatta Rajasa said the central bank has enough reserves to intervene by buying rupiah to stabilize the nation’s currency.

“We’re strong. [Pressures on the rupiah] are temporary, so be calm, there’s no need to panic,” he said on Monday as quoted by news portal detikfinance.com.

BI’s foreign exchange reserves slid more than US$2 billion after intervention to about $122 billion on Sept. 16 from $124.6 billion at the end of August or the equivalent of 7.1 months of import bills and government foreign debt payments, higher than the standard quarterly level.

Perdana Wahyu Santosa, economic and finance research director of the NGO Sabang-Merauke Circle, urged the central bank to find ways to stabilize the rupiah other than using reserves.

“Indonesia is still prone to exchange rate fluctuation. Our reserves are limited, far less than China, for instance. If the crisis continues for six months to one year, BI will still be able to cope with it. But longer than that, our reserves could be drained along with the crisis,” Wahyu told participants in a seminar on the impact of the global economic crisis on Indonesia in Jakarta on Monday.

The rupiah reflects the nation’s economic stability and a shock in the financial market is normally the first thing to cause fluctuation is in the currency, analysts have said, urging policy makers to be bold in tackling heavy volatility in the market as negative perceptions could multiply and affect the real economy.

In line with global financial markets, the country’s stock and bond markets have been heavily volatile throughout the year—particularly since early last month following Standard & Poor’s unprecedented downgrade of the United States debt rating—as audacious policies to solve economic woes in the US and European nations have yet to materialize.