JAKARTA: Indonesia’s latest moves to steady the rupiah and calm the stock market may have helped arrest the immediate slide, but experts say the bigger issue is a lack of investor trust.After the rupiah hit an all-time low on Monday (Jun 8), trading at 18,168 rupiah per US dollar, the central bank intervened quickly by raising interest rates by 25 basis points on Tuesday in an unexpected off-cycle rate hike, taking the benchmark rate to 5.5 per cent.Bank Indonesia said that the rate hike was necessary because "the rupiah exchange rate has weakened more than expected" since its last meeting at the end of May.Last Saturday, the government also agreed to increase yields on Indonesian assets to attract portfolio inflows and support the rupiah, although details remain scarce.Economists told CNA these steps are unlikely to restore long-term confidence unless the government addresses deeper concerns over fiscal credibility, policy predictability and governance.The government’s response so far has failed to touch the main source of market anxiety, which is the state budget, said Bhima Yudhistira, executive director of the Center of Economic and Law Studies (CELIOS).The Jakarta Composite Index (JCI) has slumped this year after global index provider MSCI highlighted transparency issues in Indonesian equities in January, which sparked a market rout on fears of a downgrade to "frontier" status.Bloomberg recently reported that the JCI has fallen 36 per cent from its record high five months ago and is the worst performer this year among more than 90 global gauges tracked. A “Sell Indonesia” narrative has also emerged in recent days among investors to reduce exposure to Indonesia, indicating increasing concern about its policy direction and fiscal outlook.“In my view, the problem is fiscal,” Bhima said, adding that monetary tightening would have a limited impact on the rupiah as long as the government did not clearly cut unproductive spending.Bhima said the new higher interest rate could instead hurt other sectors, as mortgage rates, consumer credit and working capital loans would also rise.
Rupiah slide and ‘Sell Indonesia’ stocks: Jakarta’s counter moves useful but experts flag deeper fiscal concerns
Indonesia’s emergency interest rate hike and efforts to support the rupiah may have helped calm markets for now, but economists say investor confidence will not fully return unless the government addresses deeper concerns.
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