Rupiah tumbles on debt monetization concerns, spike in virus cases

RUPIAH - JAKARTA. The Indonesian rupiah fell nearly 2% on Friday (3/7) and was set for its biggest weekly drop since March as worries about its central bank buying low-yielding government bonds persisted, while broader Asian stocks were boosted by robust U.S. jobs data.

The rupiah is heading for a loss of more than 2.6% this week, its biggest weekly fall since the near 8% plunge it recorded in mid-March during a severe dollar funding shortage in Asian markets. 

Investors became concerned after Bank Indonesia (BI) on Monday agreed to 'share the burden' with the government and buy bonds with even zero yields to help finance a fiscal deficit bloated by spending to tackle the coronavirus.

"We expect concerns over the planned burden-sharing arrangement to hurt market sentiment in the near term with rupiah likely facing marginal depreciation with Bank Indonesia capping any sharp weakening trend," analysts at ING said in a note.

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BI Deputy Governor Dody Budi Waluyo said on Friday the pressure on the rupiah during the week was due to domestic factors such as fear of a second wave of COVID-19 infections, adding that recent indicators showed the economy could avoid a recession despite weak growth in the second quarter.

Indonesia reported a record jump in daily new coronavirus infections on Thursday, and its capital Jakarta delayed a full exit from a partial lockdown due to the spike in cases. 

The Thai baht eased slightly and was poised for a four-day losing streak. Inflation data for June is expected later in the session and seen slightly less negative owing to relaxation of movement restrictions. 

Most Asian shares rose, led by Chinese stocks, and buoyed by an upbeat session on Wall Street on the back of data that showed the U.S. economy created jobs at a record pace in June as more restaurants and bars reopened.

Among data releases in the coming week, the highlight will be Malaysia's central bank meeting on July 7. Some analysts expect Bank Negara Malaysia will cut rates again, after cutting them in May to 2%, the lowest since 2009.