Currency strategists: Standard Chartered bullish on rupiah
Currency strategists: Standard Chartered bullish on rupiah
Jake Lee, Bloomberg/London
Investors should bet on a gain in the Indonesian rupiah after the central bank raised its benchmark interest rate to a two-year high, said Marios Maratheftis, a currency strategist at Standard Chartered Plc.
The rupiah is up 5 percent since sliding to a four-year low on Aug. 30 and the bank said it's now confident advising clients to open a short position in the dollar against the rupiah. A short position is a wager on a currency's decline. The call was made after Bank Indonesia on Oct. 4 raised its rate to 11 percent, the fourth increase in nine weeks.
"A few weeks ago the currency came under increasing pressure, but since then the policy response has been very encouraging," said London-based Maratheftis. "They've increased the interest rate aggressively and this is one of the conditions that was needed to stop the attack on the currency."
Standard Chartered, a U.K. bank that gets two thirds of its profit in Asia, predicts the rupiah will advance to Rp 9,700 per dollar by year-end from Rp 10,030 at 5 p.m. in Jakarta yesterday.
The firm also recommended buying six-month rupiah non- deliverable forward contracts. Forward contracts allow investors to bet on the future value of a currency or hedge investments denominated in it.
The comments suggest investors judge Indonesia doesn't face a crisis similar to that of 1997 to 1998, years in which the rupiah lost 56 percent and 33 percent respectively. International Monetary Fund Chief Economist Raghuram Rajan told reporters in Singapore yesterday that higher rates and the government's decision last week to boost fuel prices are a "step in the right direction."
Bank Indonesia may lift the benchmark rate to 12 percent by the end of the first quarter of 2006, Standard Chartered predicts.
The rate increase came three days after President Susilo Bambang Yudhoyono almost tripled kerosene prices and more than doubled diesel tariffs to cap the energy subsidies that eroded confidence in the nation's finances.
The price increase will allow the government to keep its budget deficit at Rp 24.9 trillion, or about 0.9 percent of the country's gross domestic product. The currency plunged 8.9 percent on Aug. 30 as the price of crude oil climbed to a record $70.85 a barrel.
"Indonesian authorities have done much to repair their damaged policy credibility," Standard Chartered's currency strategy team, led by Callum Henderson in Singapore, wrote in a report yesterday.
Maratheftis, who has a Masters in Economics and Finance from the U.K.'s University of Warwick and joined the bank from Greece's Alpha Bank SA, confirmed the report's contents.
Investors pushed the rupiah lower in five of the past eight weeks on concern rising crude oil prices would force the government to buy more dollars to finance fuel subsidies to keep energy affordable for the nation's 40 million poor. Indonesia is the only OPEC member that is a net importer of oil.
"The worst for the Indonesian rupiah is over for now," Michael Straughan, an emerging-market economist at American Express Bank in London, said in an interview yesterday. "There is more optimism that Indonesia will tackle these problems and that should be better going forward for Indonesia."