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Hopes of BI monetary policy easing boost rupiah
The rupiah has been hovering in bullish territory against the US dollar in recent days, supported by expectations of Bank Indonesia (BI) easing its monetary policy as a result of a more favorable domestic and global economic situation
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span>The rupiah has been hovering in bullish territory against the US dollar in recent days, supported by expectations of Bank Indonesia (BI) easing its monetary policy as a result of a more favorable domestic and global economic situation.
The currency has strengthened around 0.2 percent versus the greenback since last Friday and has even broken the psychological level of 14,000 by touching its strongest position this year at 13,920 per dollar on Monday.
Late on Wednesday, the rupiah stood at 13,982 per dollar. The currency has appreciated by 2.83 percent so far this year, according to Bloomberg data.
Its appreciation signals market expectations for the central bank to announce a benchmark rate cut at its monthly policy meeting scheduled for this week, according to Bank Permata economist Josua Pardede.
“Investors seem to react to the possibility of BI cutting its interest rates in this month’s policy meeting,” he said on Tuesday.
The central bank is set to announce its latest monetary policy on Thursday following a two-day Board of Governors meeting.
As many as 27 of 33 economists surveyed by Bloomberg expect BI to cut its rate on the day, which would be the first reduction since rate hikes totaling 175 basis points last year to counter an emerging-market sell-off.
Robust foreign capital inflows to the rupiah bond market had sparked a strong rally of the rupiah, driven by high yield differentials as well as expectations of a healthier balance of payments, Bahana Sekuritas economist Satria Sambijantoro said separately on Tuesday.
“We are forecasting the rupiah to strengthen to 13,770 by year-end, supported by improvement in the trade balance as well as robust portfolio inflows to emerging markets, with developed economies’ central banks tilting toward easing mode,” he added.
Bahana projected BI would slash its benchmark interest rate by 100 basis points this year to 5 percent starting with a 25 basis point cut on Thursday — a forecast shared by Morgan Stanley.
“While Bank Indonesia raised rates last year as Treasury yields and oil prices climbed, those two factors are not the case in markets this year. This provides a very nice tailwind for BI to do a bit of easing,” said Min Dai, head of Asia ex-Japan FX and rates strategy at Morgan Stanley in Hong Kong, as reported by Bloomberg.
Rate cuts would help stabilize the rupiah and enable local bonds to extend their recent rally, he went on to say.
He predicted that the rupiah would stay around the current level of 14,000 per dollar until year-end, before strengthening to 13,800 by March 2020.
