Thursday, September 22, 2011

Investors Fleeing From the Rupiah

The rupiah remained weak on Tuesday even as Bank Indonesia stepped in to halt its depreciation against the dollar, traders and analysts in Jakarta said.

One trader, who declined to be identified, said the central bank was selling as much as $300 million on the market on Tuesday to defend the rupiah. Bank Indonesia officials were not immediately available for comment.

Concerns about Europe's debt crisis and slowing US growth have prompted investors to dump their assets in Indonesia. A rush by Indonesian companies to buy dollars also helped weaken the rupiah.

"It's a psychological game. Companies want to buy dollars now before it gets worse,'' said Lindawati Susanto, head of the treasury at
Bank Resona Perdania in Jakarta. "The rupiah's decline has led to more demand for the dollar by companies, reflecting corporate panic buying. It's a combination of three factors: the European debt crisis, the US slowdown and corporate panic buying.''

The rupiah, which closed at 8,805 against the US dollar on Monday, opened at 8,950 on Tuesday morning and continued to weaken throughout the day. The currency, which was the top performer in the Asia-Pacific region last year, traded as high as 9,050 before settling at 8,980 at the close of trading in Jakarta on Tuesday.

On the stock market, where overseas investments typically account for around two-thirds of daily trading, the Jakarta Composite Index lost as much as 2.2 percent in intraday trading before closing down 0.1 percent.

Foreign investors also account for about a third of holdings in Indonesia's government securities, so the 10-year bond yield — which moves inversely to price — rose to 7.3 percent from 7.14 percent on Monday.

"Foreign exposure in our assets remain big,'' said Juniman, an economist and currency strategist at Bank Internasional Indonesia.

"They used the Euro debt crisis and slowing economy in the US as an excuse to exit Indonesia. They sold all their assets, including the ones in Indonesia. Their rupiah holdings were converted into dollars. Consequently, the rupiah slipped."

Still, Juniman was optimistic that foreign investors' confidence in Indonesia and other emerging markets would return once global financial concerns subsided.

Foreign holdings of Indonesia's government bonds fell 6.8 percent to Rp 234.18 trillion ($26.5 billion) on Tuesday from Rp 251.23 trillion as of Sept. 9, according to data from the Debt Management Office in Jakarta.

On Monday, Bank Indonesia deputy governor Hartadi A. Sarwono said Indonesia's foreign-exchange reserves fell to $122 billion last week after the bank stepped in to defend the rupiah, according to state news agency Antara. Indonesia's foreign exchange reserves were $124.6 billion at the end of August.

Bank Indonesia first intervened in the currency and debt markets on Sept. 14 to prevent the rupiah from depreciating further against the dollar. The central bank also claimed the rupiah's decline against the greenback was only temporary.

"Bank Indonesia will always safeguard the market,'' Lindawati said


 
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