Rupiah Completes Weekly Drop After Central Bank Signals Rate Cut

  • Currency retreats following 9.1 percent surge last week
  • Recent gains don't seem sustainable, according to DBS

The rupiah completed a weekly loss after Bank Indonesia said it sees greater scope to loosen monetary policy after the currency rebounded sharply this month.

The central bank held its policy rate at 7.5 percent late on Thursday in a decision predicted by all 25 economists surveyed by Bloomberg. “There is room” to ease and the central bank will consider inflation, the current account, the timing of the Federal Reserve’s plan to raise rates and capital flows, Juda Agung, executive director for monetary policy, said after the decision. Consumer-price gains will slow to less than 4 percent by year-end, from 6.83 percent in September, the authority predicted.

The rupiah weakened 0.5 percent to close at 13,530 a dollar, prices from local banks show. The currency fell 0.8 percent since Oct. 9 following a 9.1 percent surge in the previous week that was its best performance since 2001. That pared its loss this year to 8.5 percent, the worst performance in Asia after Malaysia’s ringgit.

“We still don’t see the rupiah’s recent gains as sustainable as there are many global uncertainties remaining,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “Bank Indonesia’s focus should be on anchoring confidence in the rupiah, as cutting rates without better fiscal spending won’t be too effective in gearing up the economy.”

Gross domestic product increased 4.67 percent in the second quarter, the least since 2009, official data show. Overseas shipments fell in each of the 12 months through September amid declining prices for Indonesia’s main commodity exports including coal, palm oil and metals.

The nation’s two-year sovereign bonds rose this week, pushing the yield down 16 basis points to 8.27 percent, according to the Inter Dealer Market Association. The 10-year securities dropped, with the yield rising eight basis points to 8.70 percent.

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