Indonesia stocks rise to record as rupiah falls after rate cut
Recent movements in the Indonesian currency are beneficial in terms of the current-account deficit, the central bank said
Jakarta: Indonesian stocks closed at a record high and government bonds advanced after the central bank unexpectedly cut borrowing costs on Tuesday. The rupiah fell by 0.6%.
The Jakarta Composite Index climbed 1% on Wednesday to 5,390.449, taking its advance this year to 3.1%. The benchmark interest rate was lowered to 7.5% from 7.75% after markets closed Tuesday, a move not predicted by any of the 20 economists surveyed by Bloomberg.
The central bank raised the rate by 25 basis points in November following an increase in gasoline prices. Retail rates have since declined in line with global oil prices after Indonesia all but eliminated subsidies from January.
“The rate cut was unexpected and it benefits interest-rate sensitive stocks such as banks, property and eventually consumer-discretionary companies,” said Alvin Pattisahusiwa, director of investment at PT Manulife Aset Manajemen Indonesia in Jakarta. “Now the fuel price has been mostly rolled back to the pre-November hike, it seems a sensible move to cut back the interest rate.”
Rupiah weakens
Construction and property shares jumped 3.2% and financial stocks gained 1.9%. PT Astra International, the largest company in the Jakarta gauge by market value, rose 1.9%.
The yield on government bonds due September 2025 fell 23 basis points, or 0.23 percentage point, to 7.16%, according to the Inter Dealer Market Association. That was the biggest drop since 20 January.
The rupiah declined 0.6% to 12,848 a dollar, prices from local banks compiled by Bloomberg show. It has lost 3.6% this year and reached 12,850 Wednesday, the weakest level since 16 December. In the offshore market, one-month non- deliverable forwards dropped 1% to 12,987, data compiled by Bloomberg show.
Recent movements in the Indonesian currency are “beneficial in terms of the current-account deficit,” the central bank said in a statement after the rate cut. The shortfall in the broadest measure of trade will probably be 3 percent to 3.1% of gross domestic product in 2015, compared with 2.95% in 2014, senior deputy governor Mirza Adityaswara said on Tuesday.
“The central bank’s stance is more on ensuring the rupiah is relatively stable, rather than maintaining a certain level,” said Heru Irvansyah, an economist at PT BNI Securities in Jakarta. “It will take time to fix something as structural as the current-account deficit, but improving export competitiveness is one sustainable way of doing that.”
Consumer prices fell 0.24% in January from a month earlier, the biggest drop since September 2013, data showed on 2 February. The central bank is confident that inflation will remain low as cheaper oil costs created room for the rate cut, deputy governor Perry Warjiyo said Wednesday.
Bank Indonesia set a fixing used to settle the forward contracts at 12,804 a dollar Wednesday, from 12,757 the previous day. Bloomberg
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreLess
First Published:18 Feb 2015, 03:52 PM IST
- Top Gainers
- Top Losers
- 52 Week High