Rupiah Weakens to Eight-Month Low as Hurdles for Jokowi Mount

The rupiah fell to an eight-month low and stocks dropped after Indonesia’s upper house chose a leader from the coalition opposing President-elect Joko Widodo, adding to concern he will struggle to implement reforms.

Zulkifli Hasan, from the National Mandate Party that is part of the grouping that backed losing presidential candidate Prabowo Subianto, was elected speaker of the People’s Consultative Assembly early this morning. That followed the selection of another member of the coalition as lower house speaker last week. Widodo, known as Jokowi, has a reform agenda that includes cutting fuel subsidies, improving tax collection and reducing red tape.

“It looks like the incoming president will face some challenges at the parliament,” said Irene Cheung, a Singapore-based currency strategist at Australia & New Zealand Banking Group Ltd. “Given the developments, the fuel-subsidy revision is going to be dependent on how the political front plays out.”

The rupiah declined 0.3 percent to close at 12,240 per dollar, taking its loss in the past month to 4.3 percent, prices from local banks show. It touched 12,260 earlier, the weakest level since Jan. 28. The Jakarta Composite index of shares fell 1.5 percent to 4,958.52, the steepest drop since Oct. 2.

The so-called red-white coalition that backed Prabowo currently controls 56 percent of seats in the lower house, if outgoing President Susilo Bambang Yudhoyono’s Democrat Party is included. The Democrats have voted with the coalition to select the house speakers. The United Development Party, or PPP, which was part of Prabowo’s coalition, switched to Jokowi’s camp, the president-elect, who takes office Oct. 20, said today.

Forwards, Volatility

Financial and construction-related stocks led declines in the share gauge. PT Bank Rakyat Indonesia fell 3.6 percent and cement producer PT Semen Indonesia dropped 4.2 percent.

One-month non-deliverable forwards on the rupiah traded offshore advanced 0.2 percent to 12,345 per dollar, 0.9 percent weaker than the onshore spot rate. Bank Indonesia set a fixing used to settle the contracts at 12,241, compared with 12,190 yesterday. One-month implied volatility, a measure of expected currency swings used to price options, fell 15 basis points, or 0.15 percentage point, to 10.80 percent, data compiled by Bloomberg show.

The yield on the government’s 8.375 percent bonds due March 2024 climbed two basis points to 8.48 percent, according to the Inter Dealer Market Association. Bank Indonesia held its benchmark rate at 7.5 percent for an 11th month yesterday.

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