Despite positive stock indices in the USA and Europe at the end of last week as well as mostly positive indices in Asia today (08/12), the benchmark stock index of Indonesia (Jakarta Composite Index, abbreviated IHSG) fell due to investors’ appetite for profit taking. Several matters made investors decide to sell their Indonesia shares, including the World Bank’s downward revision of Indonesia’s economic growth in 2015, Japan’s recession, weakening Chinese exports, and the sharply depreciating rupiah exchange rate.
As a result, foreign investors recorded net selling of IDR 391.8 billion (USD $32 million). The Jakarta Composite Index fell 0.85 percent to 5,144.01 points on Monday (08/12).
Today, the World Bank released the December edition of its flagship publication Indonesia Economic Quarterly. The content of this edition was not too positive as the institution lowered its forecast for Indonesia’s economic growth to 5.2 percent (y/y) in 2015 (from 5.6 percent y/y in the July edition). Meanwhile, the World Bank also expects slowing credit growth and holds a bleak outlook for the country’s exports.
Macroeconomic data from Asia were negative as well. Two important trading partners of Indonesia, China and Japan, released disappointing data. Japan has entered recession as the country posted a second consecutive quarter of negative GDP growth. In Q3-2014 Japan’s economy contracted 0.5 percent (q/q), after a 1.7 percent contraction in the previous quarter. Meanwhile, China’s imports fell 6.7 percent (y/y) to USD $157.2 billion in November 2014 causing concern about a possible larger than expected economic slowdown in the world’s second largest economy.
The aforementioned factors pushed the Indonesian rupiah exchange rate into sharp depreciation, beyond the psychological boundary at IDR 12,300 per US dollar (the lowest level since 2008), prompting Indonesia’s central bank (Bank Indonesia) to conduct measured intervention in order to support the rupiah.
In line with the global trend, the rupiah is also feeling the impact of the US dollar’s bullish momentum. As US non-farm payrolls improved in November, it is increasingly expected that the US Federal Reserve will soon raise its key Fed rate (possibly in the second quarter of 2015).
Lastly, it is believed that the rupiah has been affected by the decline in the country’s foreign exchange reserves. At the end of last week, Bank Indonesia announced that at end-November these reserves had fallen to USD $111.1 billion (from USD $112.0 billion in the previous month) due to government debt settlements and the central bank’s efforts to support the rupiah.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.46 percent to IDR 12,352 per US dollar on Monday (08/12).| Source: Bank Indonesia