Indonesian Stocks & Rupiah Fall ahead of FOMC Minutes & China Volatility
Indonesian stocks and the rupiah continued to weaken on Wednesday (19/08) in line with most other Asian stocks and currencies. Investors are cautious ahead of the release of the minutes of the Federal Reserve’s latest FOMC meeting, hence moving into safe haven assets. The minutes are to be released early Thursday morning local Indonesian time. Investors will be searching for signs informing about a possible Fed Fund Rate hike in September. If there are such signs, emerging market assets will be under heavy pressure tomorrow.
Moreover, heavy volatility on China’s benchmark Shanghai Composite Index causes concern about the world’s second-largest economy. During today’s trading day the Shanghai Composite Index plunged five percent shortly before noon but managed to finish the day at +1.2 percent, a remarkable volatile performance. Last week, China let its yuan weaken in order to boost the country’s export performance hence trying to boost sluggish economic growth (and a move that led to depreciating emerging currencies across Asia). However, investors doubt the government’s ability to support stocks thus resulting in severe volatility.
Indonesia’s benchmark Jakarta Composite Index (IHSG) fell 0.58 percent to 4,484.24 points on a relatively calm trading day (investors are in a ‘wait & see mode’ ahead of the release of the FOMC minutes).
Jakarta Composite Index (IHSG):
Today, Vietnam allowed its dong to devalue for the third time this year. Malaysia’s ringgit and Indonesia’s rupiah are both touching 17-year lows. External factors (looming further monetary tightening in the USA, turmoil in China, and low commodity prices) are disturbing the currencies of these countries.
Yesterday (18/08), Bank Indonesia kept its key interest rate (BI rate) at 7.50 percent in order to guard the rupiah against heavy volatility while trying to combat high inflation (7.26 percent y/y in July 2015). In an effort to stabilize the rupiah and thwart speculators, Bank Indonesia announced to limit the maximum amount of non-collateral foreign exchange purchases at USD $25,000 per month (down from USD $100,000). Those who purchase foreign currencies worth over USD $25,000 per month now need to provide various details to authorities (such as a report of underlying collateral, their export or import activities, and their taxpayer numbers).
Today, according to the Bloomberg Dollar Index, Indonesia’s rupiah depreciated 0.31 percent to IDR 13,843 per US dollar.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.05 percent to IDR 13,824 per US dollar on Wednesday (19/08) as the central bank had been intervening yesterday to limit the depreciating trend of the rupiah.