Remember last week when we were talking about the rupiah and how the EM rout was spreading? Yeah, well that’s still on the frontburner this week and on Tuesday, the rupiah fell to a 28-month low:
Bank Indonesia has been stepping into the market to try and stem the rout and that’s showing up in FX reserves, which we learned on Tuesday fell last month to their lowest since June. They hit an all-time high of $132 billion to start the year, but have now fallen for three straight months.
Late in April, at the IMF meetings in Washington, Governor Agus Martowardojo, said the following about the situation:
To maintain the stability of the rupiah exchange rate according to its fundamentals, Bank Indonesia has intervened in both the foreign exchange market and the domestic bond market in sizable quantities.
Yes, “sizable quantities” and as you can see above, it’s not working – or at least not entirely.
Remember, they may be a bit constrained in their ability to arrest the slide. “Sluggish growth could limit Bank Indonesia’s ability to lift rates to restore financial stability,” Mizuho said on Tuesday. That echoes concerns about the extent to which weak consumption (exemplified by the lackluster performance of the Jakarta Consumer Goods Index, which is apparently the worst performer amid a broad equity slump) could similarly leave the central bank hamstrung.
Speaking of Indonesian equities, they dove again on Tuesday, hitting an 8-month low:
“Volatility from mid-April is reminiscent of previous bouts of general EM weakness that Indonesian bonds and FX have been swept up in,”AllianceBernstein’s Brad Gibson said, adding that “Indonesia fundamentals generally don’t justify the volatility we’ve experienced.”
Ok, Brad. We’ll see. But for the time being, this is a problem.