The rupiah is one of the best performing currencies in the region year to date, having strengthened by 8.2% to Rp10.053/US$. Indonesia’s respectable economic prospect despite the current global downturn, coupled with the broad US$ weakness, have driven capital inflows into rupiah assets.
We still expect the rupiah to strengthen as foreign money may continue to flow into Indonesia’s capital markets. Last Thursday, Moody’s upgraded Indonesia rating (Ba3) outlook to positive, citing strong economic growth outlook. Improvement in commodity prices and global economic recovery would, as well, help support balance of payment.
However, we do not expect significant appreciation in the rupiah since demand for foreign currencies may pick up in the second half due to increase in demand for imports, trigger by lower lending rates and more aggressive bank’s credit disbursement. Hence, we expect the local currency to strengthen by another 2.8% to Rp9,772/US$ by the end of the year.
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