Rupiah Strengthens on Tax Breaks, Prospect of More ECB Stimulus

  • Government cuts tax for companies revaluing property assets
  • Indonesian currency can gain beyond 13,000, central bank says

The rupiah rose for a second day after Indonesia made it cheaper for companies to revalue property assets and the prospect of more European Central Bank stimulus buoyed emerging-market assets.

The currency strengthened 0.2 percent to 13,633 a dollar at the close in Jakarta, prices from local banks show. It advanced as much as 1.7 percent earlier and is down 0.8 percent for the week. The rupiah has rallied 7.6 percent in October in Asia’s best performance, paring its decline in 2015 to 9.1 percent.

The Jakarta Composite Index of share closed at a two-month high after Finance Minister Bambang Brodjonegoro said on Thursday that companies that revalue their assets before year-end will pay a tax rate of 3 percent, down from 10 percent. The move was part of the fifth installment in a series of policy packages aimed at cutting red tape and boosting economic growth. The ECB said it may expand its bond-buying program before the end of the year, sparking gains as some of the stimulus is likely to find its way to higher-yielding assets in developing nations.

“We think the impact will be visible in the coming months as companies take the opportunity to revalue,” said Heru Irvansyah, an economist at PT BNI Securities in Jakarta. “We remain quite optimistic on the rupiah, especially with the sentiment on emerging markets turning.”

Still Undervalued

The revaluation rule will help lure more investment and aid the government in closing a revenue shortfall, said Aldian Taloputra, an economist at PT Bank Mandiri in Jakarta. Double taxation on real-estate investment trusts will also be scrapped, Minister Brodjonegoro said.

The rupiah is still undervalued and it may strengthen beyond 13,000 a dollar, Bank Indonesia Senior Deputy Governor Mirza Adityaswara told reporters in Jakarta on Friday.

The yield on the sovereign bonds due September 2026 fell 10 basis points on Friday, the steepest decline in two weeks, to 8.69 percent, according to the Inter Dealer Market Association. The yield rose three basis points from Oct. 16.

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