Tue, Dec 20, 2016 page11

• Rupiah’s fortunes to fade: analysts

  • Bloomberg
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  The rupiah’s reign as Southeast Asia’s best currency is set to be short-lived as the supportive inflow from a US$12.3 billion tax amnesty program is about to be slammed shut.

  The currency is likely to slump more than 2 percent by March 31 as the market’s focus returns to Indonesia’s current-account deficit and as rising US interest rates lure money away from emerging markets.

  Bank of Tokyo-Mitsubishi UFJ Ltd says the rupiah will suffer as the US dollar strengthens, while Standard Chartered PLC predicts the currency will drop through the first half as the deficit widens.

  “A significant portion of funds under the tax amnesty would be repatriated by the end of December, which would ease some supporting flow for the rupiah,” Singapore-based Bank of Tokyo-Mitsubishi analyst Teppei Ino said. “We are also likely to see the somewhat strong [US] dollar trend remain in the first quarter.”

  The rupiah strengthened for four straight quarters through September as the amnesty and a slew of economic reforms overshadowed the current account that has been in deficit since 2011.

  The authorities expect the program to bring in as much as 165 trillion rupiah (US$12.3 billion) before it ends on March 31, compared with the 100 trillion rupiah it had attracted as of Dec. 9.

  Bank of Tokyo-Mitsubishi forecast that the rupiah would weaken to 13,700 per US dollar by March 31, matching the median forecast in a Bloomberg survey of 31 analysts.

  The decline of 2.3 percent would make it the worst performer in Asia over the period, based on a Bloomberg survey of analysts.

  The currency has gained 3 percent this year, more than four times as much as the second-placed Thai baht.

  It rose 0.1 percent yesterday to 13,383 per US dollar.

  “The macro environment won’t be weak for Indonesia with the tax revenue from the amnesty program to be used for infrastructure development,” Ino said. “The weaker rupiah forecast is more driven by the [US] dollar story.”

  However, not everyone is negative.

  TMB Bank PCL, the top rupiah forecaster in Bloomberg rankings for the third quarter, forecast that the currency would fall as low as 13,500 per US dollar this quarter before recovering to 13,000 by the end of March due to “robust economic activity” and a halt in the US dollar’s rally.

  Southeast Asia’s biggest economy expanded 5.02 percent in the third quarter year-on-year, the government said last month.

  Bank Indonesia has lowered interest rates six times this year to spur lending and stimulate domestic demand.

  “We expect to see the Indonesian economy perform well in 2017,” Bangkok-based TMB Bank strategist Jitipol Puksamatanan said. “GDP growth should exceed 5 percent with robust support from many fiscal and monetary policies.”

  Standard Chartered forecasts that the rupiah would weaken to 13,500 by the end of March and slide to 13,700 by June as the nation’s current-account deficit widens and demand for the US dollar rises.

  “While central bank intervention and likely repatriation related to the tax amnesty may provide a near-term respite for the rupiah, we expect any dips in dollar-rupiah to be shallow,” Singapore-based Standard Chartered foreign-exchange strategist Divya Devesh wrote in comments last month that he confirmed last week. “Lower real policy rates remove an important buffer for the rupiah during periods of market stress, particularly in an environment of higher US real rates.”
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