Indonesian stocks, rupiah trim losses after central bank cuts rates

Indonesian stocks, rupiah trim losses after central bank cuts rates

The Jakarta Composite index closed down 0.5 per cent, while the rupiah steadied at 13,900 to the dollar following an interest rate cut by the Indonesian central bank.

SINGAPORE: Indonesian stocks recouped some losses on Thursday (Jan 14) afternoon, after the country’s central bank announced an interest-rate cut on the back of multiple explosions and a gunfight that left at least six dead in central Jakarta.

The benchmark Jakarta Composite index ended just 0.5 per cent lower, trimming declines from an earlier session low of 4,456.46 points attained at 12.58 pm. Financials and consumer staples were among the biggest losers for the session thus far.

In the currency space, the rupiah fell about 1 per cent against the dollar at one point to as low as 13,960, before nudging back up to 13,900.

Bank Indonesia’s (BI) announcement of a 25-basis-point cut in its benchmark interest rate to 7.25 per cent may have helped sentiment. Thursday's announcement marked the first change in interest rates in 11 months.

“The central bank’s decision may not have anything to do with the blasts today, given that central bankers tend to be data-focused and monetary policies work with a 3 to 6 months lag. But markets feel encouraged that the central bank is finally doing something,” Bernard Aw, market strategist at spread betting firm IG, said in a telephone interview.

BI also lowered its lending facility rate and deposit facility rate by 25 basis points on Thursday. In a statement, the central bank said that it will assess the need for further monetary policy loosening, adding that that it did not see significant improvement in the country's economic growth in the fourth quarter.

Thursday's rate cut will provide a "long-overdue boost" to the slowing Indonesian economy, according to Gareth Leather, senior Asia economist at research firm Capital Economics. "Looking ahead, with the economy growing at its weakest pace since the global financial crisis and inflation set to remain low, further loosening looks likely."

Earlier in the day, the Jakarta Composite fell nearly 2 per cent, while the rupiah dropped 1 per cent as the deadly blasts sparked a flight to safety.

“The bomb blasts have exacerbated the bad sentiment that began in early trade, as they created a lot of uncertainties,” said Maybank's senior FX analyst Leslie Tang, referring to the regional sell-off on early Thursday as bourses eyed the overnight declines on Wall Street and lingering concerns over China. “As you know, markets hate uncertainties."

Rabobank's Michael Every expects the knee-jerk reaction to the latest tragedy to subside "fairly quickly" but external factors such as lingering China-related concerns will continue to cloud the market's outlook.

"[Markets] tend to bounce back fairly quickly thinking that fortunately life can go on, but with the current backdrop being so negative, the return to normal will be in the downward direction," the head of financial research for Asia Pacific said.

Indonesia's economy slowed to a six-year low of 4.67 per cent year-on-year growth in the second quarter. While the economy picked up pace in the third quarter to grow at 4.73 per cent compared to the same period from a year earlier, growth still fell short of the central bank's prediction of 4.9 per cent.

The Southeast Asian economy is due to release fourth-quarter gross domestic product (GDP) on Feb 5 and analysts expect growth to be less than 5 per cent for 2015, the lowest rate in six years.

Source: CNA/sk

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