Rupiah Stretches Gain to Longest in Two Months on Policy Package

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  • Government allows more companies to develop oil refineries
  • ANZ remains bearish on rupiah as U.S. rates set to rise more

Indonesia’s rupiah rose for a fourth day in the longest stretch of gains in more than two months after the government took measures to support growth in Southeast Asia’s biggest economy.

Under the country’s eighth policy package announced on Monday, private-sector companies will be allowed to build oil refineries as long as they sell the end product to state-owned PT Pertamina, said Coordinating Minister for Economic Affairs Darmin Nasution. The nation will also scrap import taxes on aviation spare parts to support that industry, he said. The rupiah’s advance was also underpinned by a new economic roadmap for China, which is Indonesia’s largest trading partner, according to Australia & New Zealand Banking Group Ltd.

“The policy on refinery development would attract investment and support growth, while China saying it will spend more is also a small positive,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking in Singapore. “But we’re still bearish on the rupiah as U.S. rates continue to rise next year.”

The rupiah strengthened 0.8 percent to close at 13,675 a dollar in Jakarta, prices from local banks compiled by Bloomberg show. It rose as much as 1.6 percent to 13,565, the highest since Nov. 12 and is leading gains in Asia this quarter.

Foreign inflows to Indonesian government bonds have driven the currency’s gains, Nanang Hendarsah, a director at the central bank, said by text message on Tuesday. Inflation is set to ease to 2.8 percent in December from 4.89 percent in November, he said.

Bonds Rise

ANZ sees the currency weakening to 14,200 by the end of March 2016, Cheung said, which is less bearish than the 14,230 median forecast in a Bloomberg survey. The rupiah is still down more than 9 percent this year amid slumping commodity prices and higher U.S. interest rates.

The central bank estimates the economy will expand 4.8 percent in the fourth quarter from a year earlier, compared with 4.73 percent in the previous three months. That’s below the full-year target of 5 percent to 5.2 percent in the revised state budget.

Government bonds rose, with the two-year yield falling 10 basis points to 8.52 percent, the lowest in more than a week, according to the Inter Dealer Market Association. The 10-year yield was little changed at 8.71 percent.