Indonesia Stocks Rise to Record as Rupiah Falls After Rate Cut 

Indonesian stocks headed toward a record close and government bonds advanced, while the rupiah fell, after the central bank unexpectedly cut borrowing costs.

The benchmark rate was lowered to 7.5 percent from 7.75 percent after local markets closed Tuesday, a move not predicted by any of the 20 economists surveyed by Bloomberg. It comes after the central bank raised the rate by 25 basis points in November following an increase in gasoline prices. Retail rates have since declined in line with global oil prices after Indonesia all but eliminated subsidies from January.

“The rate cut was unexpected and it benefits interest-rate sensitive stocks such as banks, property and eventually consumer-discretionary companies,” said Alvin Pattisahusiwa, director of investment at PT Manulife Aset Manajemen Indonesia in Jakarta. “Now the fuel price has been mostly rolled back to the pre-November hike, it seems a sensible move to cut back the interest rate.”

The Jakarta Composite Index rose 1 percent to 5,390.137 as of 11:10 a.m. local time after increasing as much as 1.5 percent earlier. That took the gauge’s advance this year to 3.1 percent. Construction and property shares jumped 2.6 percent and financial stocks advanced 2 percent, the biggest gainers among nine industry groups. PT Astra International, the largest company in the Jakarta gauge by market capitalization, increased 1.9 percent.

Rupiah Weakens

Government bonds due September 2025 advanced by the most in four weeks, pushing the yield down 26 basis points, or 0.26 percentage point, to 7.13 percent, according to the Inter Dealer Market Association.

The rupiah declined 0.3 percent to 12,808 a dollar, prices from local banks compiled by Bloomberg show. It has lost 3.3 percent this year. In the offshore market, one-month non-deliverable forwards weakened 0.4 percent to 12,911, data compiled by Bloomberg show.

Recent movements in the Indonesian currency are “beneficial in terms of the current-account deficit,” the central bank said in a statement after the rate cut. The shortfall in the broadest measure of trade will probably be 3 percent to 3.1 percent of gross domestic product in 2015, compared with 2.95 percent in 2014, Senior Deputy Governor Mirza Adityaswara said Tuesday.

“The central bank’s stance is more on ensuring the rupiah is relatively stable, rather than maintaining a certain level,” said Heru Irvansyah, an economist at PT BNI Securities in Jakarta. “It will take time to fix something as structural as the current-account deficit, but improving export competitiveness is one sustainable way of doing that.”

Consumer prices fell 0.24 percent in January from a month earlier, the biggest drop since September 2013, data showed on Feb. 2. The central bank is confident that inflation will remain low as cheaper oil costs created room for the rate cut, Deputy Governor Perry Warjiyo said Wednesday.

Bank Indonesia set a fixing used to settle the forward contracts at 12,804 a dollar on Wednesday, from 12,757 the previous day.

Source: Bloomberg – Indonesia Stocks Rise to Record as Rupiah Falls After Rate Cut

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