Indonesia rupiah nears 1998 crisis levels, central bank intervenes in FX, bonds markets

JAKARTA (Reuters) - Indonesia’s central bank stepped up currency and bond intervention on Friday to defend the rupiah, as contagion from an emerging market sell-off pushed the currency close to levels not seen since the Asian financial crisis.

Indonesian rupiah banknotes are counted at a money changer in Jakarta, Indonesia, May 9, 2018. REUTERS/Willy Kurniawan

The rupiah IDR= slipped 0.3 percent to 14,730 per dollar on Friday, matching its weakest since September 2015. If it weakens further, it would be at levels last seen in 1998.

Nonetheless, some analysts say Southeast Asia’s biggest economy is in better shape to withstand what has been a gradual currency depreciation compared with the 1997-1998 crisis, when the rupiah plummeted from around 2,000 to an all-time low of 16,800.

“Bank Indonesia’s (BI) commitment to maintain economic stability, especially the rupiah, is very firm. Therefore, we have stepped up the intensity of our intervention,” Governor Perry Warjiyo told reporters.

The rupiah has lost nearly 8 percent this year, caught up in an emerging market sell-off, which accelerated this week after a plunge in Argentina’s peso followed Turkish lira volatility.

Warjiyo said BI will continue to monitor market developments in Argentina and Turkey, though he stressed that Indonesia’s economy was “strong” with sound indicators.

Indonesia’s benchmark 10-year bond yield hit 8.094 percent on Friday, the highest since December 2016, and against a previous closing of 7.967 percent.

Nanang Hendarsah, BI’s head of monetary management, said the central bank was “decisively” intervening to support the rupiah and halt a fall in bond prices, citing the purchase on Friday of 3 trillion rupiah ($203.74 million) of bonds sold by foreign investors.

Bond outflows had pressured the rupiah and so far this year BI had bought around 80 trillion rupiah of government bonds to control rising yields, Hendarsah said.

Indonesia's main stock index .JKSE, which has seen nearly 50 trillion rupiah ($3.40 billion) of net foreign outflows this year, was down 0.7 percent at 0830 GMT, after shedding 1.3 percent earlier on Friday.

Asian markets were also under renewed pressure on Friday after a report that U.S. President Donald Trump was preparing to step up a trade war with Beijing.

BI has raised interest rates four times since May by a total of 125 basis points, trying to get investors to buy Indonesian assets again. The next policy meeting is on Sept. 26-27.

Satria Sambijantoro, an economist at Bahana Securities, said BI remained the sole supplier of dollars in the onshore foreign exchange market as exporters held onto theirs and importers appear to be buying more than they need.

The government has unveiled plans to tackle surging imports, which add to a shortage in onshore dollar supply and widening the current account deficit.

The plans include higher import tariffs for some consumer goods and enforcing wider use of biodiesel from next month to cut oil imports.

Despite the currency weakness, Indonesia’s annual inflation rate is seen only picking up slightly in August.

For the second quarter, Indonesia reported annual economic growth of 5.3 percent, the fastest in 4-1/2 years.

Additional reporting by Cindy Silviana, Tabita Diela and Fransiska Nangoy; Editing by Ed Davies and Richard Borsuk