Indonesia Rupiah, Stocks Plunge on Record Current-Account Gap

Indonesia’s rupiah fell to a four- year low, stocks dropped by the most in 22 months and government bonds plunged after the nation’s current-account deficit widened to a record last quarter.

The yield on 10-year notes surged to the highest since March 2011 after Bank Indonesia said late Aug. 16 the current- account shortfall was $9.8 billion, the largest in data compiled by Bloomberg going back to 1989.

The Jakarta Composite Index of shares has fallen 6 percent in two days after overseas investors pulled $132 million from local equities last week, exchange data show. Inflation quickened to a four-year high and economic growth slowed to the least since 2010, figures showed last week.

“Indonesia has seen a gradual but persistent bout of bad news, with slowing growth, quickening inflation and then the current-account deficit,” said Leo Rinaldy, a Jakarta-based economist at  Mandiri Sekuritas, a unit of the nation’s largest lender.

“The implication going forward is that demand for dollars will increase.”

The rupiah slid 1 percent to 10,493 per dollar as of 12:17 p.m. in Jakarta, the weakest level since June 2009, according to prices from local banks.

That was the biggest drop since July 23, extending the decline this quarter to 5.4 percent, the worst performance among Asia’s 11 most-traded currencies.

The Jakarta Composite index of shares fell 3.9 percent to 4392.475, the biggest drop since Oct. 3, 2011.

Telekomunikasi Indonesia declined 5.7 percent and Bank Rakyat Indonesia, the second-largest lender by assets, fell 6.4 percent.

Falling exports

“This is all because of the current-account deficit data,” John Rachmat, head of equities research and strategy at Mandiri Sekuritas in Jakarta.

“Once the rupiah is considered cheap, capital inflows could start coming back. Right now foreign investors, especially portfolio investors, are worried about investing in Indonesia.”

The current account has remained in deficit for seven quarters and overseas sales decreased for a 15th month in June, driven by declines in prices for Indonesia’s key commodity exports.

Coal fell 32 percent since the end of 2011, while palm oil slid 26 percent.

Bank Indonesia’s policy is to manage the currency’s depreciation to support overseas shipments, Edward Teather, a Singapore-based economist at UBS AG, wrote in an Aug. 15 research note.

Bonds drop

Consumer prices increased 8.6 percent last month from a year earlier, and growth slowed to 5.8 percent in the second quarter, official data showed last week.

Bank Indonesia left its benchmark interest rate at 6.5 percent on Aug. 15 after increasing it by 75 basis points over the previous two meetings.

“The market took the view that Bank Indonesia wasn’t that concerned about the weakness of the currency,” Robert Prior- Wandesforde, an economist at Credit Suisse Group AG in Singapore, wrote in a research note on Monday, referring to the central bank’s decision to leave borrowing costs unchanged.

“The good news is that we suspect the second-quarter current-account deficit represents the peak, albeit because deteriorating domestic demand depresses imports further.”

The yield on government bonds due May 2023 climbed for a sixth consecutive day, rising 21 basis points, or 0.21 percentage point, to 8.4 percent, the highest level since March 2011, prices from the Inter Dealer Market Association show.

Fed tapering

The rupiah spot rate traded at a 1.9 percent premium to the one-month non-deliverable forwards, which fell 1.1 percent to 10,691 on Aug. 16, the last available price.

A fixing by the Association of Banks in Singapore used to settle the derivative contracts was set at 10,499 on Monday.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 1.21 percentage points to 12.98 percent, according to data compiled by Bloomberg.

Most Asian currencies fell on Monday on speculation a reduction in Federal Reserve stimulus that has driven fund flows to emerging markets is imminent.

“Rupiah depreciation today is in line with regional currency movements,” Bank Indonesia Deputy Governor Perry Warjiyo said in a mobile-phone text message, adding that the central bank will remain in the market to stabilize the currency.

Bloomberg

  • Jason

    The problem is that suddenly the outlook for the whole country appears lousy. BI must not allow the Rupiah to devaluate that quickly and rampant. We may now soon see 11.000 to the US, that ain’t gonna help the country. Instead it will hurt economic growth even further. Though in theory a weak currency may help exports, it will not in today’s reality of Indonesia, as export driven business are not expanding in Indonesia due to lack of predictability of inflation, minimum wages development, infrastructure bottlenecks, regulatory overkill and CURRENCY risk. BI should at least immediately stop “talking” the IDR down.

    • Pelan2

      Jason, RI is about to get hit by something that could possibly be worse than 1998..The idiots that run this place have no idea what the outside world are doing to them.. Sad but true..

  • MikeOfAston

    The numbers don’t look good. I hope the country doesn’t go India’s way though more than even chance it will. SBY’s last Friday 2014 budget announcement for 6.4% growth needs much work, and luck, to achieve if at all. The budget assumes Rp 9,750 to the dollar, it is now Rp 10,500 and dropping. Depreciating Rupiah doesn’t help the country’s exports, being largely commodities in depressed buyers’ market. On the contrary it will further escalate import bill, widening current account deficit. Growth that is led by consumer demand and external funding (rather than by internal investment and productivity expansion) as experienced by Indonesia is never a long term play: it will eventually run its course and the writing is on the wall.

    • lanun

      The country export portion of total economy cake is less than 18% …Indonesia is a consumer driven economy and structurally 35 years ahead of china, unlike Malaysia and Singapore or even Thailand that depend more than 60% of their economies from export markets that will get them affected badly.

      • Lauder

        So much for your sunset currency eh, banker?

      • Leftws

        local demand driven by debt and out of control population growth
        big issues trade def, imports massive to exports and only to be worse with falling export comods and weak rp and inflation at 8.6% give current account n returns for investors headaches, cash outflow alarms but cannot stop if anything will be worse as more middle class join rich hedge. efforts by BI meaningless cos they as privates want hedge too
        bad days for indonesia are here. usual thing when economy fails here is conflicts. oil rising again after Egypt, if escalation expects $130-140, meanwhile indonesian output falls and more probs with korrupt
        new budget makes humor assumes all wrong, what will guv do? not much nearly election, poor suffers most informal sector most

      • Roland

        @lalun – “….Indonesia is a consumer driven economy and structurally 35 years ahead of china[sic]…” – what else to say?

        Take the blue pill!

  • 22roles

    Lanun has strong point, you all Take the blue pills and let me know how it feels….check that out for indonesia. Typical second hand information and bias to the core all you got.

    http://edition.cnn.com/2013/08/14/opinion/asean-dream-khanna/index.html?hpt=ias_r1

  • 22roles

    Rupiah should be back below 10000 by end of year.

  • 22roles

    There is a plot in this country to enslave every man woman and child. Before I leave this high office, I intend to expose this plot… John F Kennedy 7 days before his assassination .. Wake up Indonesia. Your debt is only 26% of GDP lowest in ASEAN if not Asia, forget about sunset country/s or commonwealth. . No need to grow faster if that only increases utang. You are doing just fine.