THE rupiah is on its best rally in almost eight years, following Indonesia’s moves to ease concern over the fiscal outlook of the country and growing bets for more US Federal Reserve interest rate cuts.
The rupiah rose as much as 0.4 per cent to 16,135 per US dollar on Friday (Jul 12), set for an eighth day of gains – which would be the longest rally for the currency since September 2016.
President-elect Prabowo Subianto and his team sought to placate investors’ worries over debt and fiscal policies on Thursday, pledging to maintain spending caps.
This comes after his brother Hashim Djojohadikusumo – who is also a prominent Indonesian entrepreneur – said that the country’s debt ratio would be raised.
The prospect of a US rate cut coming as early as September is also boosting emerging market currencies, with the Malaysian ringgit set for its best run of gains in 17 months.
“The incoming Prabowo team is going on an offensive to undo perception that the new incoming government is not going to be prudent,” said Saktiandi Supaat, head of foreign exchange research at Maybank Singapore.
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“Indonesia to me still is a bright spot in the region as the global economy picks up,” he added.
He also noted that the incoming team intended to show that “Indonesian finances will be prudent still at the higher debt-to-gross domestic product ratio”.
Still, the rally may not last should US rate cuts fail to materialise while higher global food prices and the threat of new US trade tariffs also pose risks, Saktiandi said.
He forecasts the currency at 16,600 per US dollar at the end of September.
Multinational financial services provider Toronto-Dominion Bank noted that Prabowo might need to take more steps to assure investors over his fiscal plans.
“Investors may not be convinced of this turnaround,” said Alex Loo, a macro strategist at TD Securities in Singapore, who expects the currency to fall to 16,350 by quarter-end.
“The uncertainty regarding the fiscal plans will weigh on investors’ mind in the months ahead,” he noted. BLOOMBERG
