Falling Coal Prices Threat to Indonesia Rupiah: Barclays

Roshan Vaswani|Senior Producer, CNBC Asia Pacific

The Indonesian Rupiah has been under pressure since the beginning of the year, falling close to 4 percent, as investors look to exit riskier assets.

A money changer counts Rupiah banknotes October 17, 2002 in Jakarta, Indonesia. The rupiah is at a six month low, 9,200 against the U.S. dollar, following concerns over the bomb blast on the tourist island of Bali.
Getty Images

Going forward, analysts warn of further downside for the currency with one saying that falling coal prices pose the biggest threat.

Indonesia is the world's biggest exporter of thermal coal with nearly 90 percent of the so-called "black gold" sold to other Asian countries. Fears of a slowdown in China have weighed on coal and other commodities, with Newcastle coal prices down $10 a ton since March.

According to a report from Barclays, this could translate into trouble for Indonesia. "We estimate that for each fall of $10 per ton in coal prices, other things being equal, Indonesia's current account deteriorates by 0.1 percent of GDP. For 2012, we project a current account deficit of 0.5 percent of GDP," the report said.

Indonesia's current account deficit widened for the second straight quarter in the first three months of this year to $2.89 billion, largely because of a sharp fall in export revenues, according to data from Bank Indonesia.

Coal currently makes up 14 percent of Indonesia's total exports, up from 2 percent back in 2000.

The weak current account position is weighing on the currency, says Barclays, which has revised down its 12-month price target for the Indonesian rupiah to 9,000 against the U.S. dollar from 8,800 earlier.

The investment bank also warned that recent foreign ownership caps on mining companies and proposed new rules that would limit the maximum stake of single shareholders in the country's banks from 99 percent to below 50 percent could weigh on foreign direct investment, and in turn hurt the rupiah.

Indonesia's central bank denied Monday that it was looking to impose capital controls, but said it was studying other policy options to manage rupiah and dollar liquidity.

Nizam Idris, Head of Strategy, Fixed Income & Currencies at Macquarie told CNBC's "Cash Flow" on Monday that foreign outflows from Indonesia could pick up pace and that he would stay away from the rupiah in the near-term.

"We haven't seen a massive outflow aside from last week when that whole week's outflow was equivalent to the net inflow for the entire year. So for me it's just beginning to show some panic and there's still a lot of uncertainty," he said.