T

he rupiah and stocks both booked big gains again on Friday as price rallies in global financial markets sparked an increase in purchases in the local market.

The rupiah jumped 3.4 percent to 13,412 per US dollar in Jakarta, raising its appreciation this week to 9.1 percent, while the Jakarta Composite Index (JCI), the main price gauge of the Indonesia Stock Exchange (IDX), rose by another 2 percent to end the day at 4,589.

Analysts said that surges in global stock prices due to speculation that the US central bank would not raise its interest rate this year had partly contributed to the strengthening of the rupiah and local stock prices.

However, they said an improvement in investor confidence in the Indonesian economy following the announcement of the government'€™s third economic policy package also played a part in the sharp gain in local share prices and the rupiah over the past two days.

Bank Indonesia (BI) senior deputy governor Mirza Adityaswara said both external and internal factors had influenced the recent appreciation of the rupiah, as other currencies in the region had also strengthened due to the speculation about the delayed US Federal Reserve'€™s interest rate hike.

Mirza said the rupiah'€™s surge, which reached 4.4 percent, was the highest jump of any Asian currency. Malaysia'€™s ringgit rose 3.4 percent; South Korea'€™s won, 1.2 percent; Taiwan'€™s dollar, 1.2 percent; and Thailand'€™s baht, 0.4 percent.

'€œCompared to other Asian currencies, it is clear that the rupiah'€™s appreciation was not only caused by external factors, but also due to Indonesia'€™s economic fundamentals,'€ Mirza told reporters on Friday.

Mirza said the rupiah'€™s surge was a sign of investor confidence in the government'€™s ability to fix the country'€™s economic woes.

Mirza said the rupiah was still '€œundervalued'€, despite the recent surges.

'€œOur exchange rate is still competitive enough to promote exports of manufactured goods as well as control inflation, because as prices rise, imports normally decline,'€ Mirza said.

Samuel Sekuritas economist Rangga Cipta said the country'€™s fundamentals had played a smaller role in the rupiah'€™s appreciation than external factors, although he acknowledged that BI'€™s intervention in the foreign exchange (forex) market was '€œquite significant'€.

'€œThe influence of internal factors was only from the country'€™s declining inflation, but economic growth has yet to affect the rupiah'€™s strength,'€ Rangga told The Jakarta Post.

Meanwhile, the surge in the local stock market was partly caused by the return of global funds as indicated by the increase in foreign net purchases. Foreign net purchases stood at Rp 2.26 trillion throughout the week, paring this year'€™s foreign net sales to around Rp 11 trillion, as investors flocked to big caps such as Astra International Indonesia (ASII) and United Tractors (UNTR).

Stock market analyst Satrio Utomo from Universal Broker said many investors returned to the local stock market following the issuance of the government'€™s third policy package, which was hailed by both business players and economic observers as concrete and helpful in reviving the domestic economy.

'€œWe have passed the bottom, and from now on investors will continue to purchase Indonesian stocks,'€ he said. '€œThe two latest packages are quite concrete and investors see the government is serious about improving the country'€™s economy.'€

Satrio, however, said that pressure was still to be expected in the coming months, with challenges projected to stem from upcoming third-quarter corporate reports and Indonesia'€™s trade updates.

Taye Shim from KDB Daewoo said that he had moved the JCI'€™s outlook to 4,050-4,658. However, he added that no steep increase was expected around year-end given the prolonged uncertainties and challenges in global markets, such as China'€™s decelerating growth and the fragile recovery of the EU.

'€œWe are revising up our year-end JCI target from [its previous level of] 3,588-3,947. However, given prolonged uncertainties and challenges to the global markets, we don'€™t expect a sharp price rally heading into the fourth quarter,'€ he said.