[JAKARTA] The Indonesian rupiah tumbled to its lowest level since August 1998 on Monday as declining risk appetites and increasing demand for dollars to settle year-end foreign loan payments put pressure on the country's currency, bonds and shares.
Bank Indonesia said that it was acting in both the foreign exchange and bond markets to help stabilise prices, as emerging markets from Europe to Latin America suffer sharp outflows of capital.
The rupiah fell to 12,695 rupiah before paring its losses to 12,665 per dollar. The currency was down 1.7 per cent on the day - its biggest one-day drop in more than four months - and 4.3 per cent this year.
Analysts attributed the fall to a combination of factors including how the sharp drop in oil prices has increased pessimism about global growth, and a steady rise in the dollar on expectations the US central bank will begin raising interest rates next year. "The US continues to post positive economic data which in turn hit the rupiah," said Royke Tumilaar, head of treasury at Bank Mandiri.
"High foreign ownership in our capital markets makes us really exposed to a strengthening dollar," he added.
The yield of the 10-year government bond rose to 8.203 per cent from 8.087 per cent on Friday. Traders said they believed state banks were buying bonds amid heavy foreign selling.
At 0740 GMT, the benchmark index for Indonesian shares was down 1.2 per cent.
Moves in rupiah's non-deliverable forwards suggest selling by overseas investors is behind the rupiah's latest drop, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. "There are some visible signs of currency hedging against rupiah weakness," Okagawa said.
Divya Devesh, foreign exchange strategist for Standard Chartered Bank in Singapore, said that on top of weak risk appetites, year-end corporate demand for dollars plus profit-taking in Indonesian bonds may be weighing on the rupiah.
"We have seen massive inflows into Indonesian bonds this year, and there seems to be a minor selloff in bonds, so people might be taking profit ahead of the year-end," Ms Devesh said.
Wellian Wiranto, economist at Singapore's OCBC Bank, said the rupiah "has been hit because of the relatively high degree of foreign ownership in its government bonds, which is not a plus point given the anticipation of broad strength in the US economy and dollar." Data from Indonesia's Finance Ministry shows an outflow of 11 trillion rupiah (US$869.22 million) between Dec 1 and Dec 11, during which foreign ownership of total tradable bonds fell to 38.6 per cent from a record high 39.5 per cent.
Indonesia's credit default swaps contacts were major underperformers on Monday. The 5-year contract or the cost of insuring sovereign debt for 5 years rose 12 basis points (bps) to 167/177 basis points (bps) compared with the broad market index which widened by 6 bps.
The rupiah's fall comes shortly after Bank Indonesia (BI) showed increasing concern about the level of foreign borrowing by Indonesian companies.
In October, BI issued a regulation - to take effect on Jan. 1 - that private firms should hedge 20 per cent of their dollar needs to repay offshore loans six months prior to maturity. The central bank has warned firms against unhedged loans.