In line with other Asian markets, Indonesian stocks and the rupiah are weakening heavily on Wednesday (23/09). Based on the Bloomberg Dollar Index, Indonesia’s rupiah had depreciated 0.71 percent to IDR 14,655 per US dollar by 11:08 am local Jakarta time, while the benchmark Jakarta Composite Index had fallen 1.56 percent to 4,276.43 points by the same time, with the financial sector in particular taking a hit. There are several causes that explain this weak performance today.
First of all, China’s manufacturing activity touched its slowest pace in 6.5 years at 47.0 in September 2015 (preliminary Caixin Manufacturing PMI), from a reading of 47.3 in the preceding month, implying manufacturing has been contracting for seven consecutive months in China, the world’s second-largest economy. These data are yet another indication of the hard landing of China’s economy. Being an important trading partner of other Asian countries, China's slowdown also negatively affects economic growth of its trading partners. In addition to looming higher US interest rates, investors are therefore searching for (lower-yielding) safe haven assets at the expense of most Asian assets, hence resulting in falling markets across Asia today.
Concern about global economic growth had already heightened after the Asian Development Bank (ADB) cut its forecast for economic growth in its latest Asian Development Outlook 2015 update. Yesterday, US stocks fell sharply as prices of oil and copper sank. The Dow Jones Industrial Average fell 1.1 percent, Standard & Poor’s declined 1.2 percent, and Nasdaq fell 1.5 percent on Tuesday.
Besides the ADB having revised down its forecast for Indonesia’s economic growth from 5.5 percent to 4.9 percent in 2015 and from 6.0 percent to 5.4 percent in 2016, the Indonesian government also cut its growth target. Late last night, the parliament’s Finance Commission agreed to the proposal of the government to cut the GDP growth target in the 2016 State Budget from 5.5 percent to 5.3 percent. Meanwhile, Bank Indonesia told parliament’s Budget Committee that it expects the rupiah to trade at an average of IDR 13,700-13,900 per US dollar in 2016, weaker than its earlier estimate of IDR 13,400-13,900.
It was reported yesterday that the Indonesian government seeks USD $4.2 billion in loans from the World Bank and ADB, while it also considers to sell between USD $800 million and USD $1 billion of global bonds to finance the budget deficit which may grow larger than 2.23 percent of GDP in 2015. Data from the Inter Dealer Market Association show that yields on government bonds due September 2026 rose 13 basis points to 9.32 percent.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 0.95 percent to IDR 14,623 per US dollar on Wednesday (23/09), a fresh 17-year low.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
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