JAKARTA: Indonesia stepped up efforts to protect its battered financial markets from global volatility yesterday, imposing new daily limits on how much shares can fall and organising a concerted share buy back programme.
President Joko Widodo’s administration has been forced to respond swiftly to the global sell-off, as Southeast Asia’s largest economy is already struggling with weakening domestic consumption and rock-bottom commodity prices.
Indonesia’s stock index is the worst performer in Southeast Asia this year, slumping around 20%, while the rupiah has fallen to a 17-year low against the dollar.
To reduce market volatility, the stock exchange yesterday tightened the daily limit on how much all shares can fall to a maximum of 10%, from the previous 20-35% range, depending on a stock’s price.
“The cap on daily price gains will be kept at between 20 to 35%,” the exchange said in a statement.
While the benchmark index closed up 1.56% yesterday, a number of stocks tumbled by the new daily limit, including gas producer PT Surya Eka Perkasa and lender Bank Woori Saudara.
The broader market yesterday found support from state-owned firms, which launched a government-backed plan to buy back at least 10 trillion rupiah ($710.48 million) of their shares.
“The buyback… is aimed at giving stimulus for trading at the exchange,” Nurhaida, commissioner at the Financial Services Authority, told Reuters.
Indonesia’s financial regulator eased regulations last week allowing listed firms to buy back shares to reduce “excessive market fluctuation”.
Authorities looked to prop up the rupiah by intervening in the foreign exchange and government bond markets. The currency dropped to as low as 14,085 against the dollar yesterday, the weakest since July 1998.
“Our forex reserves at $107 billion are enough to guard the rupiah,” Bank Indonesia deputy governor Perry Warjiyo told reporters.
“For trade with China, Indonesia’s biggest trading partner, the government intends to diversify away from dollars and use more yuan,” said Finance Minister Bambang Brodjonegoro.
The central bank could also activate regional forex swap agreements with other central banks, including those of Japan and China, as a second line of defence.
President Widodo urged consumers to do their part to help the markets. “Let us get over the weakening rupiah together by buying local products.”