Indonesian rupiah hits record low on central bank independence, fiscal concerns

The Indonesian rupiah slid to an all-time low against the dollar on Tuesday as investor concerns mounted over a widening fiscal deficit and the central bank’s independence following President Prabowo Subianto’s nomination of his nephew to the board.

Stocks in emerging Asian countries were mixed as trade war concerns revived, sapping risk sentiment. The MSCI gauge of emerging market Asia equities slid from record highs, while a gauge of global EM stocks inched higher.

Indonesian shares gained modestly to scale a record high for the fourth straight session, while those in the Philippines and Malaysia slipped up to 1% each.

South Korea’s KOSPI benchmark index traded sideways around its record high, while Taiwan’s benchmark equity gauge gained modestly to trade just a few pips below its lifetime high.

In Indonesia, the rupiah slid to 16,985 per dollar, its weakest point on record, a day after the country’s top leader nominated his nephew, currently a deputy finance minister, to join the central bank’s board of governors.

  Yields on Indonesia’s benchmark 10-year bonds jumped to 6.331%, the highest since early October.

Investors have been monitoring the fiscal situation of Southeast Asia’s largest economy since the abrupt sacking of the well-respected finance minister, Sri Mulyani Indrawati, in September.

President Prabowo’s populist spending measures to boost growth, the nomination of his nephew, and a new burden-sharing agreement between the government and the central bank have aggravated concerns about Bank Indonesia’s autonomy.

“The markets have perceived this (nomination) rightly or wrongly to be a potential impact on Bank Indonesia’s independence,” said Michael Wan, a senior currency analyst at MUFG.

“When combined with rising pressure on Indonesia’s fiscal deficit to rise above the current 3% cap, (it) has led to further FX pressure. We continue to see the rupiah underperforming on these continued dynamics.”

Elsewhere, the Malaysian ringgit traded flat around 4.05 a dollar, ahead of the Bank Negara Malaysia’s monetary policy meeting on Thursday, where it is expected to keep its overnight policy rate unchanged at 2.75%.

South Korea’s won resumed its downtrend, slipping marginally to 1,477.8 a dollar, its lowest in about a week.