JAKARTA • Indonesia is better placed to tackle any currency volatility and capital outflows triggered by higher US interest rates than during the taper tantrum in 2013, said Goldman Sachs Group.
The rupiah, Asia's best-performing currency after the yen last year, may not depreciate significantly from the current level, as the high yield offered by government bonds gives some buffer against capital losses, Mr Andrew Tilton, Goldman Sachs' chief Asia-Pacific economist, said in an e-mail.
Foreign investors sold a net US$2.8 billion (S$4 billion) of Indonesian stocks and bonds last quarter as investors dumped emerging-market assets following Mr Donald Trump's US election victory.
That drove the rupiah lower, forcing policymakers to intervene to stabilise the currency, in a trend reminiscent of the taper tantrum in 2013 when the US Federal Reserve's signal of stimulus withdrawal prompted an Indonesian sell-off.
"Indonesia has made several positive adjustments since the taper tantrum in 2013, including a narrower current-account deficit, lower gross external indebtedness and higher foreign-exchange reserves, all of which help to reduce its vulnerability," Mr Tilton said in response to questions from Bloomberg. "Some reversal of the commodity price decline may also help Indonesia's current-account balance over the coming year."
Indonesia's foreign currency reserves.
How much the rupiah gained against the dollar last year.
Indonesia's foreign currency reserves have grown to about US$111 billion from a 2013 low of US$93 billion, according to central bank data.
The rupiah gained 2.3 per cent against the dollar last year, capping the first annual gain in six years. The currency was little changed at 13,476 to a US dollar by 11.51 am in Jakarta yesterday. It was trading at 9,359.39 against the Singdollar.
South-east Asia's largest economy may expand 5.3 per cent this year, up from 5 per cent estimated for the year, Mr Tilton said. The risks include a legal cap on the country's fiscal deficit and the high sensitivity of the rupiah to US policies and capital flows, he said.
"We remain optimistic on the Indonesian economy," Mr Tilton said. "The main drivers of growth are likely to be private consumption and public sector investment, with much of the boost to come after the tax amnesty window closes in March 2017."