Rupiah Set for Reprieve as Analysts See Central Bank Support

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Or sign-in if you have an account.5}c1zvk]1do)kobuv602{[v4_media_dl_1.png Bloomberg(Bloomberg) — The Indonesian rupiah is poised for a period of stability, with analysts expecting the central bank to continue supporting Asia’s worst-performing currency and foreign funds to step up purchases of the nation’s high-yielding bonds.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe rupiah may strengthen to around 17,850 per dollar this quarter, up from Friday’s close of 17,895, according to Credit Agricole CIB. The bank expects Bank Indonesia to shore up the currency through rate increases and direct market intervention after it tumbled 7% this year. Meanwhile, Bank Julius Baer forecasts the rupiah will advance to 17,800 in the third quarter.Early signs of a recovery are already visible. The currency has rebounded about 1.3% since slumping to a record low of 18,190 against the dollar last month. The pair’s three-month implied volatility has dropped 115 basis points to 6.78% from 7.93% during the period, signaling lower near-term uncertainty. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againA stable currency alongside a rebound in Indonesian stocks should offer President Prabowo Subianto more room to address concerns about strained state finances and economic policy direction. Bank Indonesia has hiked interest rates by a total of 100 basis points this year, partly to stem the market rout that began with MSCI Inc. warning of a potential market reclassification in January. “The rupiah should stabilize in the third quarter following BI’s rate hikes and tighter rules to curb speculative flows,” said Jeffrey Zhang, emerging markets strategist at Credit Agricole. “We expect BI to maintain a hawkish stance in the second half of this year to preserve rupiah asset attractiveness.”The central bank is set to announce its policy rate on Wednesday, with analysts in a Bloomberg survey split between a hold and a 25-basis-points hike. In a reprieve for Prabowo, S&P Global Ratings on July 13 retained Indonesia’s investment-grade credit rating and outlook. With the nation’s benchmark 10-year government bonds offering about 7.25%, among the highest returns in emerging markets, foreign investors are set to be net buyers for a second straight month.Still, the rupiah faces pressure from rising costs of energy subsidies as an intensifying conflict in the Middle East drives oil prices higher. Currency traders will also closely track Prabowo’s ability to keep the fiscal deficit within target as he tries to cushion the economy from the war’s fallout.“Coordinated policy focus on forex stability remains an important anchor,” said Edward Lee, chief economist and head of FX for Asean and South Asia, Standard Chartered Bank. “We expect the fiscal deficit to be contained below 3% of gross domestic product.”The impending review of Indonesian equity market classification by index providers MSCI and S&P Dow Jones Indices is also an overhang on the rupiah, according to Lloyd Chan, a currency strategist at MUFG Bank Ltd. An MSCI downgrade to frontier status would trigger about $15 billion in passive fund outflows, potentially putting more pressure on the rupiah, according to Barclays Plc.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“Restoring investor confidence appears to be the most important piece in the puzzle, which will likely require more than monetary policy action alone,” said David A. Meier, an economist at Bank Julius Baer. “A less hawkish US rate outlook could relieve some pressure on the rupiah, but the wide current account deficit outlook remains a structural headwind that may cap any meaningful recovery.” This week’s main economic events:Monday, July 20: China 1-Year and 5-Year Loan Prime Rates, Malaysia trade data, Philippines balance of payments, New Zealand trade dataTuesday, July 21: South Korea trade data, Thailand customs trade data, Taiwan export orders, New Zealand 2Q CPIWednesday, July 22: Japan trade balance, South Korea PPI, Indonesia BI-Rate decision, Malaysia reservesThursday, July 23: South Korea GDP, Singapore CPI, Taiwan industrial production, Philippines budget balance, Australia jobs dataFriday, July 24: Japan CPI, India reserves, Thailand reservesNotice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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