Photographer: Brent Lewin/Bloomberg

Rupiah’s Five Year of Losses Seen Ending by Top Forecaster

  • Ebury Partnners predicts currency will strengthen 3.7% in 2016
  • Indonesian debt has returned 18% in Asia’s best performance

The best rupiah forecaster is predicting the currency will achieve its first gain in six years as global investors get behind Indonesia’s economic overhaul.

The rupiah will end the year at 13,300 per dollar, a 3.7 percent gain for 2016, according to Ebury Partners Ltd., the most-accurate forecaster in Bloomberg rankings over the past four quarters. While the projection is 1.4 percent weaker than 13,118 as of 9:41 a.m. in Jakarta Thursday, the London-based firm has raised it from an earlier estimate of an annual decline to 13,800. 

The rupiah’s 5.1 percent gain in 2016 is driven by $11 billion of inflows into government bonds and stocks as President Joko Widodo made progress cooling inflation, passing a tax amnesty law and revamping his cabinet, including luring back a seasoned finance minister. While Ebury sees risks to the rally from Bank Indonesia intervention and U.S. interest-rate increases, strategists are forecasting total returns of 3.2 percent by June 30, 2017.

“The rupiah should continue to hold up well during the remainder of 2016,” said Enrique Diaz-Alvarez, chief risk officer in New York at Ebury. “However, Bank Indonesia has continued to stress its desire to maintain a stable exchange rate, and we think that it will not hesitate to intervene should a sustained appreciation of the rupiah materially affect the country’s export competitiveness.”

Bank Indonesia

The central bank doesn’t want sharp currency gains and will smooth out moves to keep it from strengthening too much due to inflows related to the tax amnesty, Nanang Hendarsah, head of financial market development department, told reporters on July 28. The authority estimates the new law will lure 560 trillion rupiah ($43 billion) back to Southeast Asia’s biggest economy.

Malayan Banking Bhd., the second most-accurate rupiah forecaster last quarter, has lowered its year-end forecast for the rupiah to 13,300 per dollar from 13,150, betting the greenback will strengthen on expectations the Federal Reserve will raise rates by December. Third-ranked ING Groep NV predicts 13,150. The forecasts are more bullish than the 13,400 median estimate of strategists surveyed by Bloomberg. 

‘Positive Sentiment’

“Keeping the rupiah elevated against the dollar is the positive sentiment attributable to the tax amnesty law,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking in Singapore. Beyond this quarter, the Fed outlook will support the dollar, though “strong positive factors” will cap rupiah losses, he added.

The rupiah on Thursday was about 1 percent weaker than a 10-month high of 12,978 set in March, and a one-month gauge of expected swings in the currency was near the lowest level since December 2014.

The country’s local-currency sovereign notes have returned 18 percent this year, according to Bloomberg World Bond Indexes, the most in Asia and the highest after Brazil and Peru among developing nations. The bonds have rallied as the slowest inflation in at least six years gives Bank Indonesia room to add to four interest-rate cuts this year. The authority will lower its new benchmark to 5 percent from 5.25 percent on Friday, according 11 of 22 economists surveyed before the scheduled policy meeting.

Economy, Inflows

Jokowi this week forecast a growth rate of 5.3 percent next year, well below the 7 percent he said would be achieved within three years of coming to office in October 2014. Three weeks ago, he revamped his economic team, bringing back former World Bank Managing Director Sri Mulyani Indrawati as finance minister.

Global funds have pumped a net $8 billion into Indonesian sovereign bonds this year, surpassing the $7.6 billion of inflows in 2015. The nation’s main equities gauge has surged 18 percent as stocks attracted almost $3 billion, reversing a $1.6 billion outflow last year, exchange data show.

“The rupiah seems well supported at 13,100, which I infer is due to official support,” said Tim Condon, Singapore-based head of Asia research at ING. “The authorities would view further rupiah appreciation from today’s level as too much of a good thing. I expect them to accommodate rupiah depreciation pressure when it arises, subject to it remaining orderly.”

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