Indonesia Stock Index Falls 3% as 'Trumpflation' Hopes Pressure Rupiah
[Updated at 11:50 a.m. on Friday, Nov 11 to add comment and context]
Jakarta/Singapore. Indonesia stock index falls 3 percent, touching its lowest level in nearly a month, as the rupiah drops on early Friday (11/11) trading as foreign investors sells stocks amid concern that President-elect Donald Trump's fiscal and trade policy would force the US Federal Reserve to be more aggressive in hiking interest rates.
Indonesia's rupiah skidded to its weakest in more than four months on Friday, pressured by the broad strength in the dollar and a rise in most long-term government bond yields.
The rupiah tumbled 2.5 percent to 13,475 per dollar as of 01:27 GMT, its weakest since June 27. Indonesia's 10-year government bond yield rose to 7.426 percent, the highest since July 1.
Singaporean lender DBS Bank said in note to clients on Friday that US powered higher against other emerging market currencies on "Trumpflation hopes."
Trump's rhetoric of renegotiating free trade agreements and block Trans Pacific Partnership would stock inflation in the US and make the Fed to be more aggressive in hiking interest rate, which encourage capital outflow from riskier assets in emerging markets like Indonesia.
"Emerging market currencies could not shake off worries of Trump’s policies turning protectionist ... Trump’s focus on infrastructure spending to spur growth has also increased competition for countries, like India and Indonesia, that sought to do the same," DBS said.
Eric Alexander Sugandi, an economist with the Jakarta-based think tank Kenta Institute, noted that the drastic rupiah drop could also be due to cyclical demand of foreign exchange in November and December as companies buy dollars for hedging.
Also, forex liquidity in Indonesia tend to concentrate in big lenders, he said.
"In conditions like this, if small banks have demand from corporate, it automatically echoes any pressure on the rupiah."
While seeing Bank Indonesia, the country central bank has enough room to intervene the forex market, Eric warned that a persistently weak rupiah could increase domestic inflation and drag economic growth.
"Economic growth will be disturbed as imports for raw materials will be disturbed, government projects using imported machines will be disturbed," he said.
With additional reporting from Reuters
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