The nation’s financial markets plunged on Friday, as a lack of US dollars led the rupiah to touch to a 29-month low and stocks to drop to their lowest level in six months.
Negative global sentiment due to the eurozone debt crisis and China’s economic slowdown caused “investment reallocation” from emerging markets, including Indonesia, to the US, boosting demand for US dollars as a safe haven, Bank Indonesia (BI) deputy governor Hartadi A. Sarwono said on Friday in Jakarta.
“The weakening of the rupiah was exacerbated by rumors that BI would implement capital controls, so nobody was selling foreign currencies and there was a liquidity shortage in the market,” he told The Jakarta Post.
The rupiah touched Rp 9,495 per US dollar early on Friday — its weakest level since December 2009 — before rebounding to Rp 9,371 at 4:33 p.m. local time, according to prices from local banks compiled by Bloomberg.
Meanwhile, 12-month non-deliverable forwards (NDF) declined 1.8 percent to Rp 10,280 per US dollar after reaching Rp 10,435 earlier, representing a 3.4 percent slump.
“BI will continue to intervene in the forex [foreign exchange] market to supply the market,” Hartadi said.
Foreign investors, who control more than half of stocks traded on the local bourse, have been jittery, dumping Rp 5.9 trillion (US$637.2 million) in shares so far this month, including Rp 972 billion of shares on Friday alone, pressuring the benchmark stock index down 2.07 percent to close at 3,902.
Global funds have also cut their ownership of the nation’s sovereign debt by Rp 4.2 trillion this month.
Bank ICBC Indonesia, Bank CIMB Niaga and Bank Rakyat Indonesia said that the demand for greenbacks from importers and overseas investors had exceeded their supply, frustrating global funds who have been seeking to pare investments in Indonesian stocks and bonds.
“There’s no dollar supply in the market,” Artanavaro Gasali, the Jakarta-based head of global markets for Bank ICBC Indonesia, said, as quoted by Bloomberg.
“Bank Indonesia is selectively supplying dollars to local banks as opposed to foreign banks. We’re finding it difficult as well. We received only about $1 million from Bank Indonesia for a $10 million bid.”
Less liquidity was also seen in the spot market, according to Sean Yokota, a Singapore-based currency strategist at UBS AG.
“People are having a hard time trading, and the NDF market is expressing its own views on the rupiah,” Yokota said.
The central bank reported $116.41 billion in foreign exchange reserves as of the end of April, which should be enough to tackle external shocks, according to an analyst.
“The currency trades less than a billion dollars a day and Bank Indonesia has almost $120 billion in reserves, so it would not be difficult for them to contain it. They could intervene if they wanted to,” Mark Matthews, the Singapore-based head of research for Asia at private bank Julius Baer.
The rupiah is one of the least liquid currencies in Asia, according to Matthews. “You have a big market, but a very small door of entry and exit, which is the rupiah. So that’s why this currency always falls a lot in situations like this,” Matthews said.
Currency movements relied heavily on macroeconomic events, Matthews said, making sell-offs an opportunity for investors in Indonesia, because “basically it’s a very good story”.
Indonesia’s economy has been growing by more than 6 percent a year for the last several years, with inflation running from 3 to 7 percent in the same period while the government’s public-debt level was around 26 percent of the nation’s gross domestic product (GDP).
Fears that the global economic recovery might stall flared on Friday, kindled by renewed fears that debt-stricken Greece might leave the eurozone grouping.
Additional fuel came from China’s economy, the world’s second-biggest, which grew its least in almost three years, 8.1 percent, in the first quarter of this year.
Asian currencies fell for a fourth week, their longest stretch of losses this year, with the Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-traded currencies, excluding the yen, dropping 0.5 percent this week.
The rupiah fell 0.2 percent this week, while India’s rupee declined 1.6 percent. The Philippine peso weakened 1.2 percent, Thailand’s baht lost 1.1 percent, and China’s yuan slipped 0.3 percent.
Overseas funds dumped $1.5 billion in equities from Indonesia, Taiwan, South Korea and Thailand on the markets in the first four days of this week.
Benchmark emerging stock index headed for its longest weekly losing streak since 1994, with the MSCI Emerging Markets Index falling 0.6 percent this week, poised for its 10th straight week of losses.