Rupiah rallies most since October after economic growth picks up

A teller prepares rupiah notes for a customer at a money changer in Jakarta.
A teller prepares rupiah notes for a customer at a money changer in Jakarta.PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - The rupiah rose the most since October on Wednesday (Feb 10) on speculation Indonesia will lure more inflows as the economy picks up and after the Bank of Japan moved to negative interest rates.

Bank Indonesia sees room for monetary easing and growth can be higher in 2016 after expansion in the fourth quarter beat analysts' expectations, Juda Agung, executive director of monetary policy, told reporters in Jakarta on Tuesday. The BOJ's adoption of negative rates on Jan 29 will buoy demand for local assets, he said. The authority cut its benchmark rate for the first time in 11 months in January and will meet again on Feb 17-18.

The rupiah rose 1.2 per cent to 13,445 per US dollar as of 11:43 am in Jakarta, according to prices from local banks compiled by Bloomberg, and has rallied 2.4 per cent in a four-day streak. That was the strongest level since Nov 4 and the biggest daily advance since Oct 9.

The rupiah also strengthened against the Singapore dollar, rising 1 per cent to 9618.14 as of 1:14 pm, from its close of 9717.65 on Tuesday.

"People have been bearish Indonesia for some time and now they're seeing it's performing much better on a fundamental basis," said Wai Ho Leong, a senior regional economist at Barclays in Singapore. The reopening of some Asian markets after the Chinese Lunar New Year holidays will see increased buying of Indonesian assets, he said.

Overseas investors pumped 9.5 trillion rupiah (S$990 million) into Indonesian local-currency sovereign debt last week, Finance Ministry data show, after the BOJ's adoption of negative rates on Jan 29. That took inflows this year to 29.3 trillion rupiah.

The economy expanded 5.04 per cent in the fourth quarter from a year earlier, compared with a revised 4.74 per cent in the previous three months and the 4.8 per cent median estimate in a Bloomberg survey.

The yield on the nation's 10-year government bonds declined two basis points to 8.02 per cent, Inter Dealer Market Association prices show. The two-year yield fell six basis points to 7.81 per cent.