Coronavirus may weaken rupiah this year: Fitch Solutions

Coronavirus may weaken rupiah this year: Fitch Solutions

Fitch Solutions has revised the rupiah’s outlook for 2020 to 14,207 per US dollar from its initial projection of Rp 13,650, given the higher risks of a local coronavirus outbreak.

The revision comes on the back of rising headwinds faced by the Indonesian economy from the novel coronavirus disease (COVID-19) that started in China, according to research from Fitch Solutions country risk and industry research.

“The short-term drivers have turned negative due to the elevated global COVID-19 pandemic and likely local outbreak risk,” it stated. “We believe that risks of local outbreaks are high, which, once reported, will exert significant downside pressure.”

As of Friday, the rupiah traded at Rp 14,300 against the greenback in the spot market, weakening by 1.92 percent compared with Thursday’s close, the weakest since August last year.

According to the World Health Organization, there were 459 new cases and 44 deaths in 37 countries as of Wednesday. China reported 412 new confirmed cases.

As of Thursday, more than 80,000 confirmed COVID-19 cases had been reported in at least 40 countries, including neighboring countries such as Singapore, Malaysia, the Philippines and Australia. There have been no confirmed COVID-19 cases in Indonesia to date.

The rupiah has faced sell-offs in recent weeks as concerns mounted that the coronavirus that originated in China could turn into a global epidemic along with other Asian currencies, Fitch noted.

Fitch stated that risks to the outlook were on the downside, stating: “It is still unclear as to when the coronavirus epidemic will be contained […] a case of the coronavirus is yet to be reported in Indonesia, but this could be down to poor monitoring or a clampdown on the media to avoid causing panic.”

“As concerns around the lack of cases have already been raised, it is likely that if a case is reported in Indonesia, investor sentiment could sour rapidly.”

Separately, Bank Indonesia (BI) Governor Perry Warjiyo said that the weakening of the rupiah was relatively low compared to the weakening of several other countries, including South Korea and Thailand.

“The coronavirus has affected investors’ behavior as they tend to sell off. But once the situation gets better, they will start coming in,” Perry said on Friday.

Perry said that the central bank would continue to intervene in the spot market, domestic non-deliverable forwards (NDFs) and by buying government bonds (SBNs) to help stabilize the currency as well as the market.

BI has pumped Rp 100 trillion (US$7.2 billion) into the domestic bond market since the start of the year as foreign investors posted big selloffs around the world over fears of fresh coronavirus cases emerging outside China.

Source: thejakartapost.com

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