JAKARTA: Rupiah bulls are betting on further gains as foreign investors pile into Indonesian debt ahead of key interest-rate moves.
Strategists at Malayan Banking Bhd
and CIMB Bank Bhd see the currency strengthening toward 15,000 per dollar by year-end.
That’s a sharp reversal from their previous forecasts of a weaker rupiah, which closed at 15,400 per dollar last Friday.
The optimism signals an enduring rally for the rupiah – one of Asia’s best-performing currencies this quarter. A widely expected pivot from the Federal Reserve (Fed) is luring foreign capital into Indonesian bonds, where the central bank will likely leave borrowing costs steady, keeping their yield gap wide.
CIMB raised its forecast “to incorporate more dovish and front-loaded expectations for the Fed,” said Michelle Chia, regional head of treasury markets and research in Kuala Lumpur.
The rupiah’s “positive carry and favourable rotation of portfolio flows, further declines in onshore foreign currency deposits, as well as abating terms-of-trade headwinds” add to its strength, she said.
Foreign investors have piled US$2.9bil into Indonesian bonds since July, on track for the biggest net quarterly inflow since March 2023.
Exporters are also expected to gradually convert their dollar holdings into local currency as the greenback weakens.
Foreign currency holdings at banks in Indonesia are near a record, according to data compiled by Bloomberg.
The changing backdrop fuelled the rupiah’s turnaround from one of the worst performers in Asia in the first half of 2024.
Seasonal dividend repatriation flows, a stronger greenback from a hawkish Fed and investors shunning Indonesian debt amid concerns of a government spending plan weighed on the currency. — Bloomberg
