Rupiah Weakens Most in October as Fuel-Subsidy Cut Seen Delayed

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The rupiah fell the most in a month and stocks dropped on concern Indonesia will delay cutting fuel subsidies after the issue wasn’t discussed at the cabinet’s first meeting yesterday.

President Joko Widodo’s ministers didn’t specifically talk about raising gasoline prices at the meeting, said State Secretary Minister Pratikno, who goes by only one name, echoing similar comments by Finance Minister Bambang Brodjonegoro. The size and timing of energy-subsidy cuts are still being calculated, Widodo said Sept. 30, after his senior adviser Luhut Panjaitan told reporters the same day that a 3,000 rupiah ($0.25) per liter increase in retail prices was likely in November.

“The market was looking for a fuel-subsidy revision soon after the cabinet is formed,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The fact that the issue wasn’t even discussed at the cabinet meeting suggests we might not get an announcement soon, which is a disappointment.”

The rupiah fell 0.5 percent, the most since Sept. 29, to close at 12,170 per dollar, prices from local banks show. The currency has lost 1.5 percent in a five-day declining streak that’s the longest since June 4. In the offshore market, one-month non-deliverable forwards dropped 0.5 percent to 12,230, 0.5 percent weaker than the onshore spot rate, according to data compiled by Bloomberg.

Stocks, Bonds

The Jakarta Composite Index fell 0.5 percent to 5,001.304, the lowest close since Oct. 16. PT Telekomunikasi Indonesia declined 4.3 percent, providing the biggest drag for the index. PT Charoen Pokphand Indonesia dropped 2.5 percent, while PT XL Axiata lost 3 percent.

“We retain our expectation of a correction to 4,500-4,700 near term, as high inflation after fuel-price hikes will likely slow earnings growth for a few quarters.” Wilianto Ie, the Jakarta-based head of research at PT Maybank Kim Eng Securities, wrote in a research note today.

A reduction in fuel subsidies will free up government funds to be spent in other areas. Indonesia has set aside 344.7 trillion rupiah for fuel and electricity subsidies next year, a quarter of state spending.

Bank Indonesia set a fixing used to settle the forward contracts at 12,158 per dollar, from 12.042 yesterday. One-month implied volatility, a measure of expected exchange-rate swings used to price options, dropped 10 basis points, or 0.10 percentage point, to 9.21 percent, data compiled by Bloomberg show.

The yield on the government’s 8.375 percent bonds due March 2024 rose four basis points to 8.07 percent, according to the Inter Dealer Market Association.

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