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Rupiah, stocks extend gains
The buying spree continued on the local stock market on Tuesday following a price rally in other emerging markets earlier in the day amid reports that the US Federal Reserve will delay its interest rate raise
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The buying spree continued on the local stock market on Tuesday following a price rally in other emerging markets earlier in the day amid reports that the US Federal Reserve will delay its interest rate raise.
The Jakarta Composite Index (JCI), the main price barometer of the Indonesian Stock Exchange (IDX), jumped 2.35 percent to close at 4,445.78 after a 3 percent gain on the previous day as foreign investors extended their net purchases, which have already hit Rp 1.2 trillion (US$846 million) in the last two days.
The rupiah, meanwhile, surged 1.8 percent, the most since May 2012, to end the day at 14,445 a dollar after rising as much as 2.2 percent earlier, Bloomberg reported.
The currency has strengthened 2.7 percent this week, paring its loss this year to 13 percent.
Bank Indonesia (BI) senior deputy governor Mirza Adityaswara partly attributed the pickup to the latest government's economic policy package and the central bank's newest monetary policy in addition to the surge in the global financial market.
'The weakening of the rupiah has been driven by global causes, so is the strengthening,' he said in a text message on Tuesday. 'At the same time, our macroeconomic data are improving as well, with the latest statistics on inflation and the CAD [current account deficit].'
Finance Minister Bambang Brodjonegoro said the global market had become more and more certain that the US Federal Reserve would not increase its key policy rate this year. 'It is more likely that the Fed will jack up the rate in 2016 and that has driven currencies to strengthen. The rupiah is also appreciating and our stock market is improving,' he said.
The probability of the Fed deciding to raise its interest rate at its December meeting slipped by 33.4 percent from 43 percent a week earlier, Bloomberg reported, as data showed American employers added 142,000 workers to payrolls in September, a figure lower than the lowest estimate of 96 economists.
Economists contacted by The Jakarta Post all said that the rupiah had been far undervalued throughout the year, and a strong rebound had been expected, although Tuesday's level was quite surprising.
Aldian Taloputra from Mandiri Sekuritas, Tony Prasetiantono from Gadjah Mada University and Budi Hikmat from Bahana Asset Management were all of one voice in saying that Tuesday's pickup could be traced it to the possibility that the Fed would hold back on its interest rate increase this year.
They, however, added that the government's second economic package launched last week had also contributed to the improving the financial market, thus making the currency and the stock market the best performers compared with regional peers in the past two days.
The new economic policy package includes tax incentives for the transportation industry, the simplification of procedures in obtaining business licenses for industrial activities, the use of forest areas for mining operations and industrial forests and a cut in the tax rate for interest on US dollar and rupiah deposits owned by exporters from 20 percent to between zero and 10 percent.
All the economists said that the rupiah was now expected to continue with a more stable outlook toward the year-end.
'We are, however, still betting on whether the Fed will raise its interest rate in December. If there is pressure, it is more likely to occur toward next year as the probability of a US interest hike is higher in March,' Aldian added.
Taye Shim from KDB, however, added a dissenting voice, saying that a rallying JCI might only last temporarily.
'We judge this short-term rebound to be a relief, and expect this rebound to be short-lived. Nothing materially has changed to ease concerns over the softening of global growth,' Shim said.
Foreign funds pulled $1.2 billion from Indonesian stocks and Rp 11.86 trillion from the country's local-currency bonds last quarter amid an emerging-market selloff driven by a slowdown in China's economy and the US moving closer to raising interest rates. The Jakarta share gauge has rallied 7.9 percent since closing at a two-year year low on Sept. 28, Bloomberg reported.
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