July 12 (Bloomberg) -- The best rupiah forecasters predict the currency will weaken as much as 6 percent by the end of this quarter, inflating costs at companies that import raw materials and widening the nation’s trade deficit.
Morgan Stanley, which had the closest estimates in the past six quarters as measured by Bloomberg Rankings, expects 10,000 per dollar. Credit Suisse Group AG, the second-best, forecasts 9,750, while third-ranked JPMorgan Chase & Co. sees 10,000. That is more pessimistic than the 9,400 median for 24 analysts surveyed by Bloomberg, near yesterday’s close of 9,415.
The rupiah has dropped by almost 10 percent in the past year, pushing up import costs for companies including PT Kalbe Farma, Southeast Asia’s largest drug maker. The country recorded a second consecutive trade shortfall in May as exports fell by the most since September 2009. It may post its first full-year current-account deficit since the Asian financial crisis in 1997-98, according to DBS Group Holdings Ltd.
“The trade balance deterioration would be fine in a world in which risk appetite is much stronger,” Ray Farris, global head of foreign-exchange strategy at Credit Suisse in Singapore, said in an interview yesterday. “The strength of domestic demand is now weighing on the current-account deficit in a world in which risk appetite is not good. That combines to argue for a soft currency.”
China’s Premier Wen Jiabao warned July 8 that the downward pressure on his economy is still relatively large, while the U.S. reported payroll data on July 9 that trailed estimates. Much of Europe is mired in recession, with the International Monetary Fund forecasting in April that euro-area economies will contract 0.3 percent in 2012.
Indonesia, Southeast Asia’s largest economy, recorded a trade deficit of $486 million in May, following April’s $765 million shortfall. That’s the first back-to-back deficit since Bloomberg began tracking the data in February 2008. Exports fell 8.5 percent in May from a year earlier, while imports surged 16.1 percent, the statistics bureau said on July 2.
Kalbe Farma, a Jakarta-based company which imports about 90 percent of the raw materials it uses to make drugs, expects the rupiah to range between 9,300 and 9,500 this year, Corporate Secretary Vidjongtius, who like many Indonesians goes by only one name, said in a July 2 interview. A weaker level would swell costs, he said. PT Bayu Buana, a travel operator, has budgeted for the rupiah as low as 9,500.
“If it goes beyond that then our targets are threatened,” Corporate Secretary Henry Paul Lumoindong said in a July 5 interview in Jakarta.
New export taxes on commodities has weighed on Indonesian overseas sales, Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a July 10 report.
Bank Indonesia Governor Darmin Nasution told parliament last week that pressure on the rupiah would subside this half because European authorities have begun to address their credit crisis, adding that the scenario is “fragile.” The central bank, which has intervened repeatedly to support the currency this year, expects the rupiah to trade between 9,100 and 9,300 for the rest of 2012, he said.
Royal Bank of Scotland Group Plc, the fourth-best forecaster, has the sixth-most optimistic quarter-end estimate. It expects the currency to trade at 9,400, compared with a previous projection of 9,155.
Indonesia’s foreign-exchange reserves have declined almost 15 percent to $106.5 billion since reaching a record-high of $124.6 billion at the end of August, central bank data show. The economy expanded 6.3 percent in the first quarter from a year earlier, not far behind 2011’s growth of 6.5 percent.
“Indonesia’s fundamentals are sound enough not to worry about capital outflows,” Erik Lueth, a senior regional economist at Royal Bank of Scotland in Hong Kong, said in a July 6 interview. “The central bank has sufficient reserves for all debt falling due this year so even in the worst-case scenario, it could always lend out its reserves.”
Indonesia is on track to register a current-account deficit of 0.9 percent of gross domestic product this year, analysts at DBS led by David Carbon wrote in a July 6 report. The country is susceptible to capital flight, Stewart Newnham and Yee Wai Chong, Morgan Stanley analysts based in Hong Kong, wrote in a report last month.
Foreign funds piled into Indonesian assets as the world economy recovered from 2008’s global credit crisis, almost tripling their holdings of government bonds in the two years through Sept. 9, 2011, to a record high of 251.23 trillion rupiah ($26.6 billion), finance ministry data show. That has been pared to 230.05 trillion rupiah as of July 6. Offshore investors have bought a net $8.8 billion of local stocks since the end of 2007, exchange data show.
Global funds sold $825 million more local stocks than they bought in May, the biggest monthly net sales since August, and pulled 4.4 trillion rupiah from sovereign debt, according to exchange and finance ministry data.
In response, Bank Indonesia offered its first dollar-term deposits last month to increase the domestic supply of greenbacks. The monetary authority aims to attract $2 billion how kept in offshore banks, Deputy Governor Halim Alamsyah said in late May.
One-month implied volatility for the currency, which measures exchange-rate swings used to price options, has fallen to 8.25 percent from a 2012 high of 17.5 percent on May 30.
“If the government was really serious about having a strong currency, they would have acted more forcefully,” Wee-Khoon Chong, a fixed-income strategist at Societe Generale SA in Hong Kong, said in a phone interview yesterday. “The market is too complacent. The volatility market is not pricing in any chance of depreciation in the rupiah, which is too optimistic.”
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