Update COVID-19 in Indonesia: 24,538 confirmed infections, 1,496 deaths (28 May 2020)
29 May 2020 (closed)
USD/IDR (14,502) -231.01 -1.57%
EUR/IDR (16,128) -204.62 -1.25%
Jakarta Composite Index (4,753.61) +37.43 +0.79%
Around the globe, financial markets experienced a heavy storm – or a tornado – in March 2020 as coronavirus fears peaked. Particularly after the World Health Organization (or WHO) officially labelled the COVID-19 outbreak a “pandemic” on 11 March 2020 and a growing number of nations started imposing restrictions on the movement of people and economic activity, markets entered deep red territory.
Emerging market assets, which are known to be riskier, have it particularly rough amid these volatile times. Indonesia is traditionally among the most fragile emerging markets in Asia, with reasons being that it runs a wide and structural current account deficit, which implies that it is dependent on inflows of foreign investment. Moreover, foreign investors traditionally hold between 35 and 40 percent of Indonesia’s sovereign bonds. This is a very high ratio, and is a risk in times of global market turmoil as foreign investors tend to move their money into safe haven assets amid global turmoil. For Indonesia that means big capital outflows.
Since the beginning of 2020, foreign investors have moved more than USD $4 billion out of Indonesian government (rupiah denominated) debt paper. These big capital outflows put heavy pressure on the Indonesian rupiah exchange rate. We clearly saw this in March 2020. The rupiah rate weakened from a position of IDR 14,234 per US dollar on the last trading day of February 2020 to the level of IDR 16,367 per US dollar (Bank Indonesia’s JISDOR rate).
This article discusses the following:
• The impact of the COVID-19 crisis on the Indonesian rupiah.
• What are the possible scenarios for the rupiah in 2020?
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