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Fed and local policy strengthen rupiah: Bank Indonesia
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Bank Indonesia said on Wednesday that the rupiah's significantly increase was triggered by a confirmation that the US central bank is likely to increase its interest rates next year, instead of this year.
'Besides that, the second government economic package has also boosted positive sentiment in the market,' Andiwiana Septonarwanto, Deputy Director of the Communication Department at Bank Indonesia, told thejakartapost.com.
According to Andiwiana, the market positive sentiment has increased the optimism of foreign investors as signaled by capital inflows into stock market.
The rupiah jumped 420 points to Rp 13,821 per US dollar at Wednesday's close, an appreciation of 2.95 percent from Tuesday's closing session at Rp 14,241. The Jakarta Composite Index (JCI) followed the positive movement and managed to rebound.
External factors
An economist at Samuel Sekuritas, Lana Soelistianingsih, said that external factors were affecting the rupiah's appreciation more than internal factors such as the upcoming release of the government's third economic package.
The rupiah's positive movement was followed by the JCI. After a 0.39 percent decline in the first session, the JCI rebounded by 0.93 percent to 4,487.13 with a transaction value of Rp 6.18 trillion (US$449.3 million).
According to Lana, a decrease in factory employment in the US in September sparked new speculation in the global market that the US Federal Reserve would not aggressively raise its benchmark interest rate this year.
If it does increase, the Fed rate was predicted to rise in December 2015 at the earliest by 10 or 15 basis points, in order to preserve the US central bank's credibility as it had previously promised to raise rates this year, said Lana.
She suggested that Indonesia's central bank should ride out the situation by intervening in the market in a bid to help the rupiah appreciate further. "'And as the sentiment is now good enough, the government should release the next economic package. If it's effectual, the investors will respond positively."
On the Indonesia Stock Exchange (IDX), 188 stocks rose and 108 decreased, while another 84 were unchanged. Eight of 10 sectoral indices contributed to the gain, led by the basic industrial sector that rose 2.95 percent.
In Asia Pacific, the MSCI Asia Pacific Index rose 2.1 percent to 131.73. Hong Kong's Hang Seng Index shot up by 3.1 percent, South Korea's Kospi added 0.8 percent and Singapore's Straits Times Index rose 2.1 percent.
Foreign reserve
As Lana suggested, the Indonesian central bank has spent a significant amount of money stabilizing the rupiah, leading the foreign exchange reserve in September to drop US$3.6 billion to $101.7 billion, lower than the previous month at $105.3 billion.
'This development was attributable to the use of foreign exchange for servicing government foreign debt payments and stabilizing the rupiah exchange,' said BI's communications department executive director Tirta Segara.
The situation, Tirta explained, was consistent with BI's commitment to always be in the market to guard the rupiah in line with its fundamental value, to support macroeconomic and financial system stability.
Tirta said the official reserve was adequate to cover seven months of imports or 6.8 months of imports and pay the government's foreign debt interest. It is well above the international standard of reserve adequacy at three months of imports.
BI said that the September reserve was enough to strengthen monetary resiliency against external factors, and maintain sustainable growth in the internal economy. (ags)
