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July 23, 2014 8:32 am
Asian emerging market currencies came off early highs on Wednesday, as investors reacted to the prospect of central bank intervention to stem the rapid rise of the rupiah on confirmation of the result of the general election in Indonesia.
The Reuters news agency carried a report quoting Bank Indonesia spokesman Peter Jacobs saying Bank Indonesia “will intervene so the fluctuations due to election sentiment are not too sharp”.
Joko Widodo’s victory at the polls sparked a rally in the currency, taking it to its strongest level against the dollar in two months, with Rp11,485 required to buy a single dollar. It closed at Rp11,590 on Tuesday. The rally was its biggest advance since early July and took it to its strongest level since May.
The rupiah’s gain over the day took it 1.2 per cent higher against the dollar at its peak, but after the report of potential intervention it slipped back to stand up 0.7 per cent against the US currency.
Rival Asian emerging market currencies also came off their highs, as the risk of competitive devaluations appeared to heighten, although risk appetite on global markets continued to improve, with equities markets in the region reaching six-year highs.
India’s rupee eased 0.2 per cent to Rs60.24, while the Philippine peso lost 0.1 per cent to 43.30 pesos. The Thai baht also slipped 0.1 per cent to Bt31.75.
The outcome of Indonesia’s election remains, however, subject to dispute. Mr Widodo’s sole rival, former general Prabowo Subianto, who polled 47 per cent of the vote to the victor’s 53 per cent, called it “not fair, not just, not clean”. He must file any formal protest with the courts within three days.
Analysts expected the market to continue to look past the dispute.
Wai Ho Leong, at Barclays’ emerging markets research unit, said: “We expect the focus of market attention to shift to coalition-building talks and the shape of the cabinet. The size of Jokowi’s victory margin is likely to provide a tailwind to coalition talks.
“Rupiah performance will also depend on policy details and implementation, as well as improvements in fundamentals, including the current account and fiscal balances. Importantly for the rupiah, our economists think the new Jokowi administration could announce a reduction of fuel subsidies by the end of the year. Reductions in fuel subsidies are likely to be positive for the currency.”
Some other global emerging market currencies were higher. The Turkish lira climbed 0.5 per cent versus the dollar to TL2.0945 and was up 0.6 per cent against the euro at TL2.8181. South Africa’s rand added 0.3 per cent to R10.4505.
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