Rupiah falls despite investment grade status

The rupiah fell for a fourth straight day on surging demand for the US dollar before the year-end as foreign investors sold rupiah assets to cash in on profits, and on continued uncertainty about the eurozone debt crisis.

The currency dropped by 0.9 percent, the most in three weeks, to Rp 9,150 per dollar as of 3:02 p.m. in Jakarta, Bloomberg data showed. The currency has fallen 1.5 percent so far this year, and is heading for its first annual decline since 2008.

Bank Indonesia (BI) governor Darmin Nasution said short-term factors had affected the rupiah’s medium-term appreciation potential after Fitch Ratings upgraded Indonesia’s sovereign debt rating to investment grade, indicating lowering investment risk that would attract more capital inflow.

Those factors include the unresolved eurozone debt crisis that has spurred investors to seek safer investment instruments like the US dollars and foreign investors repatriating and cashing in their profits, he added.

“The short-term situations are pressuring the medium-term [potential],” Darmin told reporters.

The stock market, however, ended in the green on Thursday amid selling pressure across regional markets, with the benchmark Jakarta Composite Index (JCI) gaining 0.03 percent to close at 3,795. International funds booked a Rp 98 billion net buy during the day.

“In the medium-term, the investment grade will increase the attraction for investors to come in, increase opportunities for cheaper long-term funds to flow in, and also increase the ratings of our best companies,” Darmin said.

Fitch has also upped the long-term credit ratings for eight banks and five firms in Indonesia and local authorities are also expecting Standard & Poor’s (S&P) and Moody’s Investors Service to follow suit in the following months.

BI deputy governor Hartadi Sarwono previously said that the rupiah was expected to trade at about
Rp 9,100 against the US dollar this year and between Rp 8,900 and Rp 9,000 next year.

The central bank, which carries the responsibility of guarding the day-to-day movements of the rupiah, has spent US$13.3 billion from Indonesia’s foreign exchange reserves during the last three months ending November.

The reserves were at $111.3 billion by the end of November, enough to cover 6.4 months of imports
and government foreign debts. BI has pledged to continue intervention using the reserves to stabilize the rupiah and avoid steep drops that could shock the market and in turn destabilize the country’s economy.