The Jakarta Post
Foreign investors seemed undeterred by the steep fall in the rupiah over the past week as indicated by the continued increase in the flow of foreign funds into the country's capital markets.
Net buying by foreign investors in the Indonesia Stock Exchange (IDX) has topped Rp 918.2 billion (US$70.6 million) in the past several days, taking the total foreign net buying this year to Rp 11.4 trillion. Foreign buyers have been the main drivers of the recent price rallies on the IDX.
Meanwhile, in the bond market, foreign investors have added Rp 1.6 trillion to their holdings of Indonesian government bonds in the past month, the latest data from the Finance Ministry shows.
The robust foreign-fund inflows into the stock and bond markets have occurred amid the steep depreciation of the rupiah.
The Indonesian currency has been under selling pressure in the past several days on fears over the country's economic outlook.
The rupiah breached the 13,000 mark, its lowest level in six years, in early trading on Tuesday but managed to recover later in the day to close at 12,968 a dollar following market intervention by Bank Indonesia (BI).
Analysts say the recent fall in the rupiah has been caused more by the purchase of dollars by local investors either to finance imports or to protect rupiah-based assets from further plunges in the currency, rather than as a result of foreign capital outflows.
In the past declines in the rupiah have been largely caused by massive foreign-fund outflows as foreign investors sold their stocks or bonds due to worries over the condition of the country's economy.
Analysts said that despite the falls, investors did not have real concerns about the currency.
'While the rupiah has depreciated against the US dollar like many other Asian currencies, the rupiah is largely stable on a real effective exchange rate basis,' Chua Hak Bin, an economist with Bank of America Merrill Lynch, said on Tuesday.
'Markets are more focused on positives from falling inflation, stronger infrastructure investment and the prospect of further policy rate cuts,' he added.
Dini Agmivia Anggraeni, a fixed-income analyst with Trimegah Securities, predicted that foreign investors could still tolerate rupiah swings of up to 5 percent on the year-to-date average rupiah value of 12,800 per US dollar. 'Foreign investors appear to remain optimistic on the rupiah outlook,' she said.
On Tuesday, BI senior deputy governor Mirza Adityaswara gathered foreign analysts in Singapore for a briefing that focused on the central bank's monetary stance and its rupiah-intervention strategy.
BI did not aim for a certain level for the rupiah and the central bank would focus on maintaining currency stability and reducing volatility, Mirza told The Jakarta Post, when asked about his briefing.
Analysts from Maybank who attended the meeting said the senior deputy governor gave a signal that BI would tolerate a weak rupiah to help boost exports and to curb imports to improve Indonesia's current-account position.
'To encourage this shift toward manufacturing exports and discourage unnecessary imports, the central bank is inclined toward an undervalued rupiah,' Maybank analysts led by Saktiandi Supaat wrote in a report distributed to their clients
A study by BI has shown that every 1 percent rupiah depreciation against the dollar boosts Indonesia's exports by 0.1 percent and reduces imports by 0.3 percent.
Last year Indonesia recorded a $26.2 billion deficit in its current account, which is the broadest measurement of trade and includes exports, imports, services and transfers.
Government officials have also moved to calm unwarranted fears among the public over the rupiah's steep depreciation. 'Some may think the rupiah's decline to the psychological level of 13,000 [per US dollar] might resemble the 1999 situation, but this time it is different,' Coordinating Economic Minister Sofyan Djalil said recently.
'The rupiah weakness is normal because other countries are also experiencing the same issue with their currencies. In addition, foreign investors are still confident about the outlook for our economy, so nothing is wrong here,' he insisted.
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