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Investors dump rupiah assets
A massive sell-off in stocks and bonds by foreign investors, on the back of concern over fiscal management, dragged the rupiah down through the psychological barrier of 10,000 per US dollar on Monday
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A massive sell-off in stocks and bonds by foreign investors, on the back of concern over fiscal management, dragged the rupiah down through the psychological barrier of 10,000 per US dollar on Monday.
Investors desperately off loaded rupiah assets on additional fears of dollar shortages in the local market.
The dollar traded at Rp 10,087 at 16:30, down by 2 percent from 9.886 on Friday, according to Bloomberg, while Reuters cited the currency at Rp 10,105.
Bank Central Asia's selling and buying prices were set at Rp 10,050 and Rp 9,750, respectively, while Bank International Indonesia's priced the rupiah at Rp 10,000 for buying and Rp 9,750 selling.
The central bank's benchmark JISDOR (Jakarta interbank spot dollar rate), launched recently to provide more credible rupiah quotes for investors, banks and their clients, traded the rupiah at 9,806, from 9,790 on Friday.
'The continual delay in fuel subsidy reforms is not helping investor sentiment. We are seeing foreign investor outflows, which are causing the rupiah to depreciate,' Khoon Goh, a senior currency strategist with ANZ Bank in Singapore, said on Monday.
The rupiah is 'very sensitive to fluctuations in foreign portfolio flows' as Indonesia has one of the weakest external positions in Asia due to its current account deficit, Goh explained.
'Given the large current-account deficit, Indonesia needs to attract $1 billion of portfolio inflows each month just to keep the rupiah from depreciating.'
The trade balance slid into the red again in April, posting a deficit of $1.62 billion as imports grew faster than exports.
Finance Minister Chatib Basri said somewhat enigmatically that the decline in the rupiah was still manageable as the revised 2013 State Budget had forecast the currency to trade at 9,600 per dollar throughout the year.
Chatib argued that the target could still be achieved if the government succeeded in curbing fuel subsidies.
'We can improve the situation if increase the price of subsidized fuel, which has become the source of pressure to the rupiah,' he said.
In line with the rupiah, other Asian currencies also headed into decline on the sentiment that the US central bank would tone down its monetary stimulus.
India's rupee, Malaysia's ringgit, South Korea's won, the Philippine peso all dropped on Monday trading, with the rupee touching a record low.
'With other Asian currencies also depreciating against the US dollar, I do not expect Bank Indonesia to hold steadfastly to the 10,000 mark,' said Goh.
The dollar outflows have been further exacerbated by the selling-off of portfolio investments, such as bonds and stocks.
Foreign ownership in government bonds declined to Rp 300 trillion as of June 5, or Rp 5.2 trillion lower than a week earlier.
Net sales of stocks by foreign investors on Monday topped Rp 1.23 trillion ($124 million), the biggest in almost two years, dragging down the Jakarta Composite Index to a three-month low.
The index, half of whose investors are foreign entities, plunged by 1.81 percent to 4,777.37.
Since May 2, foreign investors have sold a net Rp 13.9 trillion of equities, according to figures from the Indonesian Stock Exchange.
'Investors are starting to price in some economic slowdown because of higher fuel costs,' said Harry Su, head of research at PT Bahana Securities as quoted by Bloomberg.
'Some short-term correction is definitely warranted. Our rise to the 5,200 level was with disregard to fundamentals.'
