Rupiah 4-day slump ‘temporary blip’ on Greek referendum

The rupiah extended its slump to four days on Thursday over concerns that the newly announced Greek referendum would bring the debt-stricken nation into default, but Bank Indonesia (BI) and analysts said it was just another temporary blip.

The rupiah dropped 0.5 percent to Rp 8,978 to the US dollar as of 4 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency dropped 0.8 percent earlier in the day as it touched Rp 9,000, the weakest level since a month ago and leading Asian currency declines along with the Philippines’ peso.

Foreign investors were avoiding risky assets, as they feared that the newly announced Greek referendum would not support the European Union counterparts’ agreement to bailout the nation on the brink of default, analysts said.

International funds sold Rp 224 billion (US$24.98 million) of publicly traded stocks at the Indonesia Stock Exchange (IDX) from Monday to Wednesday. The benchmark Jakarta Composite Index (JCI) stock index gauge dove 1.5 percent to 3,075 on Thursday.

Asian currencies weakened on Thursday including the South Korean won’s 0.7 percent drop and Malaysia ringgit’s 0.5 percent decline, bringing the Asia Dollar Index down 0.2 percent.

“It’s a short-term dynamic. In the long-run, our rupiah is strong and stable as our fundamentals remain solid,” said Darsono, BI research adviser for the monetary policy bureau. The rupiah remained stable so far this year, while other currencies in the region depreciated.

“[The rupiah’s four-day depreciation] is just a temporary blip that needs BI’s presence to stabilize market. It’s OK for us to intervene because our forex reserves are very strong,” Darsono added.

The central bank’s intervention to buy rupiah and Indonesian government bonds in the secondary market has pushed the foreign exchange reserves down further to US$114 billion by the end of October, down from $114.5 billion in the previous month after peaking to $124.6 billion in August.

“The central bank’s forex reserves are relatively strong as compared with the previous year’s to intervene in the market,” said Fauzi Ichsan, a senior economist at Standard Chartered Bank Indonesia.

The forex reserves have more than doubled in the past two years from $51.6 billion at the end of 2008, $66.1 billion in December 2009 and $96.2 billion by 2010-end.

“In the short-term, the financial market will really be affected by global factors and the swing will be steep. The Greek referendum is bringing more uncertainties to the market and investors dislike uncertainty — especially when economic conditions are slow,” Fauzi said.

“The financial market has been very news-centered lately, so the movement depends on news from Europe.”

The Asia-Pacific Index of regional shares also dropped 1.2 percent during the day when Japan’s Nikkei and Hong Kong’s Hang Seng respectively fell more than 2 percent, while Singapore’s Strait Times and Thailand’s stock index weakened over 0.8 percent.