JAKARTA (TheInsiderStories) – Jakarta Composite Index (JCI) opened higher on Monday (28/5) after newly appointed Bank Indonesia Governor Perry Warjiyo reaffirmed the likelihood of second hike in the key rate after the first hike since November 2014.
BI is expected to make good on its promise to end its expansionary monetary policy by raising its interest rate on incidental meeting on Wednesday (30/5) in response to external pressures that have hit the rupiah hard, analysts have said to stabilize rupiah currency amid the volatility challenge.
At 09.29 WIB, the JCI was up 6.73 points or 0.11 per cent at 5,982.47. The JCI finished modestly higher on Friday following gains from the financials and resources stocks.
For the day, the index gained 29.20 points or 0.49 percent to finish at 5,975.74 after trading between 5,949.52 and 6,003.24.
On spot market, the rupiah strengthened 0.25 per cent to Rp14,080 higher, making the most gains among major currencies in Asia.
The Indonesian rupiah has been under heavy pressures in recent weeks amid broad-based US dollar strength. These pressures stem from looming further monetary tightening in the USA, rising 10-year US treasury yields, concerns about a global trade war, rising crude oil prices, as well as high local US dollar demand in Indonesia’s April-May dividend payout season.
The rupiah has passed beyond the psychological Rp14,000 per US dollar level which then caused a high degree of concern among Indonesians, many of whom still have vivid memories of the Asian Financial Crisis in the late 1990s, a crisis that started with a drastically weakening rupiah.
Despite having changed to a floating exchange rate regime and having a much stronger financial system than in the 1990s, the rupiah passing beyond Rp14,000 per US dollar is still a sensitive matter for Indonesians as well as source of criticism for the government.
In recent weeks Bank Indonesia has been intervening in markets by selling foreign exchange and by buying bonds. However, pressures continue and therefore Bi’s efforts only resulted in the guided depreciation of the currency.
However, to improve confidence in the rupiah and make Indonesian assets more attractive investment options for investors, an interest rate hike would be a much stronger approach.