The rupiah jumped nearly 3 percent on Wednesday amid signs of growing confidence in the countryâs economy and the inflow of foreign funds into the countryâs financial markets
he rupiah jumped nearly 3 percent on Wednesday amid signs of growing confidence in the country's economy and the inflow of foreign funds into the country's financial markets.
The rupiah posted its biggest surge in six years to close at 13,821 against the US dollar, nearly 3 percent up on the previous day's close, and up 5.2 percent so far this week, according to data from Bloomberg.
The rupiah rally occurred despite the decline in the country's foreign exchange reserves, which dropped by US$3.6 billion to $101.7 billion in September from $105.3 billion in August, the seventh consecutive monthly drop this year.
'There are huge inflows into the stock markets, including in Malaysia. Sentiment has driven investors into the Indonesian market as well, with its big potential and cheap prices,' Bank Central Asia (BCA) economist David Sumual said.
In its third day of gains the Jakarta Composite Index (JCI), the main stock market gauge, rose nearly 1 percent to close at 4,487.
The index has gained 5 percent this week. Foreign funds added Rp 1.4 trillion (US$101.63 million) to its holdings of Indonesian stocks in the last two days, which if continued would lead to the first weekly inflow in three months.
'What is important now is how to maintain the growth momentum by implementing the government's economic packages and improving the country's economic fundamentals,' David added.
UOB Group Economist Ho Woei Chen said that despite recovering from its 17-year low, the rupiah was still down by 10 percent against the dollar year-to-date.
In a report Ho said the rupiah would remain weak for the next two quarters because of the weak commodities outlook, current account deficit and a firmer dollar against regional currencies driven by expectations of a US interest rate rise.
Ho said that UOB maintained its rupiah projection at 14,700 per dollar by year-end and 14,800 in the first quarter of 2016 as the current sharp rise might not be sustained.
'Such a massive move normally preindicates a significant reversal,' she said.
Gadjah Mada University economist Tony Prasetiantono concurred with David, saying there was still a possibility of further pressure, and it was important to benefit from the momentum and strengthen the country's fundamentals and competitiveness.
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