Rupiah Records Biggest Drop in Two Weeks Before Policy Review

  • Prospect of ‘rate cuts may be weighing on the rupiah’: Oanda
  • Global funds hold record amount of Indonesian sovereign bonds

Indonesia’s rupiah fell the most in two weeks before a central bank meeting on Friday when policy makers are forecast to cut interest rates for a fifth time this year.

Bank Indonesia Governor Agus Martowardojo will lower the lower the new benchmark to 5 percent from 5.25 percent on Friday, according 11 of 22 economists surveyed by Bloomberg. The rest expect no change. Trading in the rupiah resumed after a holiday Wednesday, when most emerging-market currencies in Asia declined. The rupiah has strengthened for the past three quarters and foreign ownership of Indonesian government debt is at a record high as President Joko Widodo’s reforms gather pace.

“The anticipation of further rate cuts may be weighing on the rupiah a little bit,” said Stephen Innes, a senior trader at Oanda Asia Pacific Pte in Singapore. “It has had a stellar run, so maybe there’s some lingering profit-taking going on.”

The rupiah weakened 0.2 percent to 13,117 per dollar in Jakarta, according to prices from local banks compiled by Bloomberg. It climbed to 13,068 on Aug. 1, the strongest since March, and was the only Asian currency along with India’s rupee to weaken Thursday as speculation that U.S. interest rates will remain low for longer buoyed regional assets.

Economic Reforms

Widodo has initiated a raft of economic reforms and laid out an infrastructure blueprint which includes building ports, roads and railways to spur growth to 7 percent by the end of his term. In June, lawmakers passed a bill for a tax amnesty that lasts until March 2017 and which the central bank estimates will lure 560 trillion rupiah ($43 billion) of inflows over an unspecified period.

The seven-day reverse repurchase rate will be the benchmark from Friday, replacing the reference rate that was lowered four times this year. Bank Indonesia has room to reduce borrowing costs further if the economy requires a boost, Deputy Governor Perry Warjiyo told CNBC on Aug. 1.

Indonesia’s 10-year government bonds rose, with the yield falling three basis points to 6.81 percent, according to prices from the Inter Dealer Market Association. The yield on five-year notes dropped six basis points to 6.61 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE