Rupiah Drops to Five-Week Low as Growth Slows, Dollar Advances

  • Government spending to boost Indonesia's economy: Nomura
  • Currency playing catch-up after two-day holiday: ANZ

The rupiah fell to a five-week low after Indonesia’s economic growth disappointed and the prospect of higher U.S. interest rates boosted the dollar.

The Indonesian currency weakened as local markets opened after a two-day holiday and traders reacted to gains in the greenback following comments by regional Federal Reserve officials that monetary policy tightening remains on the cards this year. Gross domestic product increased 4.9 percent in the first quarter from a year earlier, according to a May 4 report, slowing from the previous three months and less than the 5.07 percent growth forecast in a Bloomberg survey of economists.

“The rupiah weakened following the softer-than-expected first-quarter GDP print, and also as the dollar was firmer into the end of last week,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “I am still looking for the rupiah to weaken later this year as the Fed resumes policy normalization.” 

The rupiah fell 0.4 percent to 13,291 per dollar in Jakarta, a third day of declines, according to prices from local banks. It reached 13,315, the weakest since March 31. The currency’s 0.7 percent drop in May has pared its 2016 advance to 3.7 percent.

Fed Comments

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, climbed 0.1 percent after rising 1.5 percent last week, the most since the period ended Nov. 6. New York Fed President William Dudley said in a New York Times interview that it’s “reasonable” to expect two U.S. interest-rate increases this year. St. Louis Fed chief James Bullard said last week the central bank’s June gathering is a “live meeting” for considering a rate hike.

Nomura Holdings Inc. expects Indonesia’s economy to expand 5.2 percent this year as government spending boosts domestic demand, according to a May 4 research report published after the release of first-quarter growth data. GDP increased 4.8 percent in 2015, the slowest pace since 2009.

The yield on 10-year sovereign notes advanced one basis point to 7.79 percent, according to the Inter Dealer Market Association.

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