Rupiah Rallies Most Since October After Economic Growth Picks Up

  • Currency is still undervalued, says central bank official
  • Two-year sovereign bond yield drops to eight-month low

The rupiah rose the most since October on speculation Indonesia will lure more inflows as the economy picks up, and after a central bank official said the currency is undervalued.

Growth can be higher in 2016 after expansion in the fourth quarter beat analysts’ expectations, Juda Agung, executive director of monetary policy, told reporters in Jakarta on Tuesday. The currency is benefiting from declining bets for more U.S. interest-rate increases due to concern over global economic growth and has room to strengthen, Nanang Hendarsah, head assistant at the central bank governor’s office, said on Wednesday.

The rupiah rose 1.1 percent, the most since Oct. 15, to 13,463 a dollar in Jakarta, according to prices from local banks compiled by Bloomberg. It’s rallied 2.3 percent in a four-day streak and advanced to 13,410 earlier, the strongest level since Oct. 15.

“People have been bearish Indonesia for some time and now they’re seeing it’s performing much better on a fundamental basis," said Wai Ho Leong, a senior regional economist at Barclays Plc in Singapore. The reopening of some Asian markets after the Chinese Lunar New Year holidays will see increased buying of Indonesian assets, he said.

The economy expanded 5.04 percent in the fourth quarter from a year earlier, compared with a revised 4.74 percent in the previous three months and the 4.8 percent median estimate in a Bloomberg survey. The monetary authority cut its benchmark rate for the first time in 11 months in January and will meet again on Feb. 17-18.

There is room for more monetary easing, and the Bank of Japan’s adoption of negative interest rates on Jan. 29 has buoyed demand for local assets, Bank Indonesia’s Agung said. Slowing inflation, the prospect of more reductions in borrowing costs and the BOJ move have lured 33.4 trillion rupiah ($2.5 billion) of foreign money to Indonesian local-currency sovereign bonds this year, Finance Ministry data show.

The yield on the nation’s two-year government bonds fell 14 basis points to an eight-month low of 7.73 percent, Inter Dealer Market Association prices show. That on the 10-year notes declined three basis points to 8.01 percent.

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