Rupiah Strengthens to Four-Month High as Fed Rate Odds Decline

  • Government to announce fourth part of policy package Thursday
  • Currency pares gain after worse-than-expected export numbers

The rupiah surged to a four-month high amid signs the U.S. won’t raise interest rates this year and before Indonesia’s government releases the fourth installment of a policy package aimed at boosting economic growth.

A gauge of dollar strength has dropped 2.5 percent this month on signs the Federal Reserve will delay a rate increase, and futures contracts now show only a 27 percent probability of it happening in 2015. Indonesia will announce stimulus measures on Thursday including a formula for regular minimum wage increases for better business certainty, Coordinating Minister for Economic Affairs Darmin Nasution said on Monday. The rupiah pared gains after figures released Thursday showed September exports and imports fell more than forecast.

The Indonesian currency strengthened 1.9 percent to 13,370 a dollar as of 11:46 a.m. in Jakarta, according to prices from local banks, after rising as much as 2.9 percent to 13,228 earlier. It’s rallied 9.5 percent in October, paring its loss for the year to 7.3 percent. The Jakarta Composite Index of shares increased 0.9 percent.

“Market expectations for the Fed rate hike are inching away from this year and into next year,” said Trian Fatria, a treasury research analyst at PT Bank Negara Indonesia in Jakarta. “That gives Indonesia more room to implement the policy packages they’ve announced to prepare the economy and make it more resilient before the Fed raises rates,” he said, adding that it’s possible for the rupiah to reach 13,100 a dollar in the next few weeks.

Exports Disappoint

Indonesian exports fell 17.98 percent in September from a year earlier, compared with the median estimate in a Bloomberg survey for a 15 percent drop. Imports were down 25.95 percent, more than the forecast for a 20 percent decline. That resulted in a trade surplus of $1.02 billion.

Bank Indonesia will hold its policy rate at 7.5 percent on Thursday, according to all 25 economists surveyed by Bloomberg.

The yield on Indonesia’s 10-year bonds fell seven basis points to 8.73 percent, according to the Inter Dealer Market Association. The yield has dropped 87 basis points this month.

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