JAKARTA (TheInsiderStories) – Indonesian capital markets was under pressure on Wednesday (25/4) as the U.S treasury yields have surpassed 3 per cent, hitting the highest level since 2014. As the result, it strengthened the U.S dollar against any other currencies, including Indonesian rupiah.
Indonesia’s stock markets are the worst affected among other Asian stock markets today. The benchmark Jakarta Composite Index tumbled 2.40 percent to 6,079.85 points.
Indonesia is particularly vulnerable to a “flight to safety” as the country has among the largest exposures to foreign portfolio holdings.
Foreign investors held Rp861.02 trillion (US$62 billion) holding of Indonesian sovereign bonds, equivalent to 39 percent of the total, as of April 24, 2018. A total of Rp12.32 trillion worth of Indonesian bonds and stocks were sold in the three consecutive trading days to Tuesday.
Apart from the rising US treasury yields, rising expectations of four Federal Reserve interest rate hikes in 2018 (instead of three hikes as assumed earlier) also contributes to low risk appetite in markets.
However, TheInsiderStories assume there is tendency that Bank Indonesia will raise its interest rate in next month meeting, since the bank has said there is no more room to ease the monetary policy.
Bank Indonesia (BI) signaled a more hawkish tone last week when it left rates unchanged. The Bank has intervened in both the foreign exchange market and the sovereign bonds market in considerable quantities.
In its official statement on April 24, BI said it will continue to monitor and be aware of the risk of continuing weakening trend in the Rupiah exchange rate, both triggered by the global turmoil, the impact of U.S interest rate hikes, U.S-China trade wars, rising oil prices, and escalation of geopolitical tensions on the continuation of foreign outflows from the sovereign bonds market and shares of Indonesia.