Indonesia's rupiah trades near record low, commodity policy fears hammer Jakarta stocks

Indonesia’s rupiah hovered near record lows on Friday and Jakarta stocks were set for their worst week since the onset of the COVID-19 pandemic, as investors remained wary of the country’s policy direction after an outsized interest rate hike.

The rupiah weakened 0.4% to 17,665 per dollar by 0337 GMT, staying close to the all-time low of 17,745 touched earlier this week.

The currency has lost nearly 6% this year, making it one of Asia’s worst performers, as higher oil prices, elevated US yields and a stronger dollar pressure import-heavy economies.

Jakarta shares edged up 0.4%, suggesting some bargain-hunting after a bruising selloff, but the benchmark remained on course for its steepest weekly fall since March 2020.

 The index had fallen for eight straight sessions through Thursday and shed more than 15% over that stretch. It is down about 29% this year, hit by foreign outflows and concerns over the government’s fiscal discipline, central bank independence and state intervention in markets.

Much of the latest equity-market anxiety has centred on the government’s plan to tighten control over coal and other commodity exports, a move investors fear could disrupt sales, add restrictions on private companies and cloud earnings visibility in one of Indonesia’s key foreign-exchange earning sectors.

Efforts to curb export value manipulation, including mis-invoicing and illegal mining practices, would be positive for Indonesia in the long run, but private firms may see the tighter rules as negative, said Chandresh Jain, emerging market Asia rates and FX strategist at BNP Paribas.

Pressure on Indonesia comes as oil-importing Asian economies grapple with a global energy shock triggered by the Middle East conflict. Bank Indonesia surprised markets with a 50-basis-point rate hike this week to support the rupiah, even as inflation remains contained.

“The high yield environment globally is generally not good for IDR,” Jain said, adding that markets could test BI at future meetings by pushing dollar/rupiah and bond yields higher.

The Indian rupee was little changed after a run of record lows, with traders citing likely dollar-selling intervention by the Reserve Bank of India.

 The currency is down 6.6% this year. The Philippine peso weakened 0.2%, having lost about 4.5% this year, with inflation concerns keeping alive expectations that the central bank may tighten again.

Turkish assets came under renewed pressure after a court annulled the Republican People’s Party’s 2023 congress that brought Chairman Ozgur Ozel to power, underscoring investor concern over the stability of the country’s political and legal system.

 Turkey’s BIST 100 equity index fell 6%, triggering a market-wide circuit breaker, while the Turkish lira traded flat, last down 0.2%.

 Elsewhere in Asia, Taiwan stocks climbed 1.5%, extending gains after Nvidia’s upbeat outlook supported chip-related shares. South Korean shares edged up 0.2%, while Chinese shares, Manila, Kuala Lumpur and Singapore also rose.