Indonesian Rupiah Falls 0.57% but Benchmark Stock Index Gains 1.34%
Various factors contributed to the 1.34 percent rise of Indonesia's benchmark stock index (also known as the Jakarta Composite Index or the IHSG) on Monday (18/11) to 4,393.59 points. Firstly, the index was supported by other major Asian stock indices which all benefited from rising indices on Wall Street and in Europe at the end of last week. Secondly, the IHSG felt the positive impact from speculation that the government of China will reform its economy in order to spur economic growth.
Lastly, news that Fitch Ratings affirmed Indonesia's sovereign credit rating at BBB- with a stable outlook was well-received by investors. The only real negative issue on today's trading day was the continued fall of the Indonesian rupiah exchange rate. This managed to somewhat limit the gain of the IHSG.
Stock indices in Asia were mostly up due to speculation that China's government will implement a reform policy package in order to support economic growth. Moreover, positive market sentiments also originated from Japan where the yen weakened against the US dollar as the latter rose due to improving economic data (US manufacturing picked up in October 2013), while prime minister Shinzo Abe is planning to increase monetary stimulus to spur Japan's economic growth.
Ahead of the Federal Reserve's FOMC meeting, held later this week, the Indonesian rupiah exchange rate deteriorated. The central bank's mid rate fell 0.57 percent to IDR 11,627 per US dollar. Market participants are cautious ahead of the FOMC meeting and therefore tend to let go of their rupiah. Moreover, Indonesian companies demand more US dollars in order to pay off US-denominated debts before the end of the year. Thus, the rupiah performed different from the Australian dollar and Indian rupee, which both appreciated due to speculation concerning Chinese reforms as well as Janet Yellen's remarks last week through which she indicated to support the continuation of the Federal Reserve's USD $85 billion per month stimulus program (quantitative easing).
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