Rupiah Falls Most in Week Since 2013 as Growth Outlook Worsens

  • Foreign funds pull money from Indonesian stocks for 11th week
  • 10-year sovereign bond yield rises to highest since March 2010

The rupiah completed its steepest weekly drop in almost two years as foreign funds pulled money from stocks amid a worsening growth outlook for Indonesia and signs the U.S. will raise interest rates in 2015.

The Indonesian currency slid 2.1 percent, the most since November 2013, to close at 14,686 a dollar, prices from local banks show. It fell 0.3 percent on Friday and reached 14,710 earlier, the weakest level since July 1998. Financial markets were closed on Thursday for a public holiday. The rupiah is down 9.2 percent this quarter in the worst performance in Asia after Malaysia’s ringgit.

Overseas investors pulled $104 million from Indonesian shares in the three days through Wednesday, set for an 11th week of outflows, exchange data show. Parliament’s finance commission cut the growth estimate in the 2016 budget to 5.3 percent, from 5.5 percent, on Tuesday. A gauge of dollar strength rose to near a six-month high after Federal Reserve Chair Janet Yellen said on Thursday that raising interest rates in 2015 “will likely be appropriate.”

“We’re seeing persistent outflows from the stock market as growth is expected to remain quite soft,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “What would turn the flows around is if we see firm initiatives from the government to boost growth.”

Bank Indonesia is planning incentives for exporters who keep their proceeds onshore and will revise rules on currency forwards to allow trades as large as $5 million to have no underlying transaction, compared with the current maximum of $1 million, Juda Agung, executive director of monetary policy, said on Friday. The policy package will be released “soon,” he said.

The economy can still expand by as much as 5 percent this year, Finance Minister Bambang Brodjonegoro said Sept. 21, adding that the government has only met 60 percent of its spending target for 2015. Gross domestic product increased 4.67 percent in the second quarter from a year earlier, the least since 2009.

Sovereign bonds fell this week, pushing the yield on the notes due September 2026 up 54 basis points to 9.54 percent, Inter Dealer Market Association prices show. That’s the biggest weekly increase since November 2013 and the highest level since March 2010.

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