Indonesian Stocks & Rupiah Strengthen on Politics and Fuel Price Hike
Indonesian stocks and the rupiah have rebounded on Friday due to several internal and external factors. During the first trading session on Friday (17/10), the benchmark stock index of Indonesia (Jakarta Composite Index, or IHSG) surged 0.94 percent to 4,998.14 points. Meanwhile, based on the Bloomberg Dollar Index, the Indonesian rupiah exchange rate had appreciated 0.26 percent to IDR 12,228 per US dollar by 12:30 pm local Jakarta time. Why do Indonesian stocks and the rupiah perform well on Friday?
Firstly, Asian indices, including Indonesia’s IHSG, are greatly affected by the performance of global indices, particularly by the performance of stock indices on Wall Street. On Thursday (16/10), US stocks ended mostly higher on Wall Street after investors drew some encouragement from new economic data on the labour market as well as the latest batch of corporate earnings. This then provided positive market sentiments in Indonesia on Friday.
Secondly, domestic news caused investors to engage in stock buying on the Indonesia Stock Exchange. Political tensions may have somewhat eased after president-elect Joko Widodo (Jokowi) met opposition leader Prabowo Subianto on Friday morning. Both men stated that they aim for good cooperation in the years ahead although the opposition in parliament will criticize government they oppose. Recently investors had become worried whether Widodo can implement his reform programs effectively as he can only rely on the support of a minority coalition in parliament.
Furthermore, this morning news spread that Widodo will raise prices of subsidized fuels (gasoline and diesel) by 50 percent within two weeks of taking office (Widodo will be inaugurated on Monday 20 October 2014). This move may save the government up to USD $13 billion, which can then be relocated to Widodo’s reform programs that include economic and social development.
However, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.12 percent to IDR 12,222 per US dollar on Friday (17/10).
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
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