Rupiah, IDX drop for fourth straight week

The rupiah and the nation’s stock market continued to decline for a fourth consecutive week as foreign investors reduced their holdings of Indonesian assets to avoid risks on mounting euro debt fears.

The rupiah fell 0.4 percent to Rp 9,058 per US dollar as of 3:50 p.m. on Friday, according to Bloomberg.

The currency touched Rp 9,230 during Thursday’s trading, its weakest in 17 months.

The nation’s benchmark stock index tumbled 3.12 percent this week to a month-low 3,637 on Friday.

International funds, which control about 60 percent of shares traded on the Indonesia Stock Exchange (IDX), sold a net Rp 666 billion in stocks between Monday and Thursday, according to IDX data.

Stock market selloffs may intensify negative perceptions of the nation’s overall economy, while a weakening rupiah may result in, among other things, more expensive imports for consumers and higher borrowing costs for private firms and the government — all of which hinder economic expansion.

Bank Indonesia (BI) has intervened by buying rupiah used in foreign exchange reserves and purchasing local government bonds to ease volatility and stabilize rates and prices amid selloffs.

“Our forex reserves are still enough, well above the international prudential threshold,” BI deputy governor Hartadi Sarwono said on Friday.

The central bank’s forex reserves slid by US$10.68 billion within two months to $113.96 billion as of the end of October, enough to meet 6.6 months of import bills and government foreign debt payments.

Economists are concerned that rupiah selloffs might dry up foreign exchange liquidity at local banks, which might lead to more expensive forex loans, hindering local firms’ expansion plans.

Hartadi, however, said forex liquidity was still adequate, despite large corporate demand for forex due to the year end.

“BI will maintain rupiah stability so that it will not weaken drastically to exceed its fundamental factors,” he added. Many economists have lowered their forecasts for the rupiah from below Rp 9,000 per US dollar to above Rp 9,000 by the end of this year.

“Market trust will recover after commitments from Germany and the EU. Afterward, room for rupiah appreciation will return, along with the return of capital inflows,” Hartadi said.

“Generally, I see the rupiah depreciation and other regional and global currencies as caused by lingering uncertainties in Europe.”

Germany, EU’s strongest economy, continued to oppose possible efforts to resolve the grouping’s debt crisis, including giving a bigger role to the European Central Bank and creating a eurobond that would pool the debts of all the countries in the economic and monetary Union union.

BI governor Darmin Nasution previously said that the BI would stay in the currency and bond markets until selloffs cooled to assure investors that there was nothing to worry about and that prices would not fall any further.

“We’re there to buy,” Darmin said.

The yield on the government’s benchmark 10-year bonds increased 47 basis points, or 0.47 percent, this week to 6.82 percent, according to the Inter-Dealer Market Association. Yields move in the opposite direction of prices.