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Rupiah could reach 12,000: top fund manager
Indonesiaâs second-largest fund manager says the rupiah can strengthen to 12,000 per US dollar this year and advises its clients to hold onto their rupiah assets to reap returns from the strengthening rupiah
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Indonesia's second-largest fund manager says the rupiah can strengthen to 12,000 per US dollar this year and advises its clients to hold onto their rupiah assets to reap returns from the strengthening rupiah.
Even after the hike of federal funds rate in the US, the rupiah could strengthen to 12,000 or 12,700 per dollar this year, Ezra Nazula, a fixed-income analyst with Manulife Asset Management Indonesia, wrote in an analysis distributed to clients on Monday.
Data from the Jakarta Interbank Spot Dollar Rate (JISDOR) show that Indonesian currency traded at Rp 12,945 per dollar on Monday.
'Various policy packages issued by the government could act as a cushion to prevent further rupiah depreciation,' said Ezra, whose company manages US$4 billion in assets in Indonesia. Canadian-based Manulife has at least $45 billion in assets invested in 10 markets, from China, Hong Kong and Japan to Indonesia, Singapore and the Philippines.
'A Fed rate hike could potentially cause a sudden shock in the financial markets, but its impact to the Indonesian bond market could be minimal when compared to other countries,' explained Ezra.
The rupiah is an important variable in the bonds and stocks markets, as a depreciating currency will erode the returns of foreign investors who use dollars when investing in local assets.
This year, the rupiah's 4 percent loss in the first quarter was the worst in Asia, with the steep currency depreciation spooking bond investors who opted to pull their funds out of Indonesia.
Indonesia recorded at least $750 million in foreign fund outflows from the bonds market in the first two weeks of March, when the rupiah dropped below 13,100 per dollar, Finance Ministry data show.
Ezra argued that the rupiah's first quarter depreciation might be cyclical in nature, mostly because of the temporary boost in dollar demand due to foreign debt payments and earning repatriation.
Over the last four weeks, the rupiah has gained 2.2 percent over the US dollar. The strengthening rupiah thus invited back inflows and triggered a rally in the bonds market, with the yield for 10-year Indonesian government bonds already falling 19.1 basis points month-to-date to hit 7.24 percent on Monday, according to Asian Bonds Online.
Analysts from foreign banks such as ANZ, BNP Paribas and Morgan Stanley predicted that the rupiah could weaken to 13,600 this year as it fell victim to the strong dollar demand globally, but such analyses were rebuffed by the World Bank, which predicted more bullish views on Asian currencies.
This is because the market 'tends to overshoot' the risk of the strengthening US dollar, Sudhir Shetty, the World Bank's chief economist for East Asia and the Pacific, told reporters on Monday via a video conference from Singapore.
'My guess is that you are not going to see the magnitude of depreciation like what has happened in the last six months; that was very dramatic,' he said.
Commenting on the issue, Bank Indonesia (BI) spokesperson Peter Jacobs says that the central bank will not target the rupiah to reach a certain level; but rather, his preference is for currency stability.
'For us, it doesn't matter if the rupiah is traded at 12,000 or 13,000 [per US dollar], as long as its movement is not too dramatic and its volatility remains manageable,' he said on Monday.
