The Indonesian Rupiah has been under pressure since the beginning of the
year, falling close to 4 percent, as investors look to exit riskier
assets. Going forward, analysts warn of further downside for the currency with one saying that falling coal prices pose the biggest threat.
Indonesia
is the world's biggest exporter of thermal coal with nearly 90 percent
of the so-called "black gold" sold to other Asian countries. Fears of a
slowdown in China have weighed on coal and other commodities, with
Newcastle coal prices down $10 a ton since March.
According
to a report from Barclays, this could translate into trouble for
Indonesia. "We estimate that for each fall of $10 per ton in coal
prices, other things being equal, Indonesia's current account
deteriorates by 0.1 percent of GDP. For 2012, we project a current
account deficit of 0.5 percent of GDP," the report said.
Indonesia's
current account deficit widened for the second straight quarter in the
first three months of this year to $2.89 billion, largely because of a
sharp fall in export revenues, according to data from Bank Indonesia.
Coal currently makes up 14 percent of Indonesia's total exports, up from 2 percent back in 2000.
The
weak current account position is weighing on the currency, says
Barclays, which has revised down its 12-month price target for the
Indonesian rupiah to 9,000 against the U.S. dollar from 8,800 earlier.
The investment bank also warned that recent foreign ownership caps on mining companies and
proposed new rules that would limit the maximum stake of single
shareholders in the country's banks from 99 percent to below 50 percent
could weigh on foreign direct investment, and in turn hurt the rupiah.
Indonesia's
central bank denied Monday that it was looking to impose capital
controls, but said it was studying other policy options to manage rupiah
and dollar liquidity.
Nizam Idris, Head of Strategy, Fixed Income & Currencies at Macquarie told CNBC's "Cash Flow"
on Monday that foreign outflows from Indonesia could pick up pace and
that he would stay away from the rupiah in the near-term.
"We
haven't seen a massive outflow aside from last week when that whole
week's outflow was equivalent to the net inflow for the entire year. So
for me it's just beginning to show some panic and there's still a lot of
uncertainty," he said.
Source: CNBC
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