Morgan Stanley Expecting Rupiah Reversal; Bank Indonesia Disagrees
The central bank and two economists on Friday cast doubt on a report from financial-services firm Morgan Stanley that predicted the rupiah would slump to 11,000 to the dollar by the end of the year.
Stewart Newnham, Morgan Stanley’s Hong Kong-based currency strategist, wrote in a research report released on Friday that the rupiah would depreciate because it had been overvalued, Bloomberg reported.
“We believe that the Indonesian rupiah rally has extended beyond what its underlying fundamentals would suggest,” Newnham said.
“The rupiah now looks overvalued, its price momentum is at its limit and there is an indirect risk of unwinding of positions in its equally stretched domestic markets.”
Responding to the Morgan Stanley report, Hartadi A Sarwono, a Bank Indonesia deputy governor, said the rupiah would likely continue to strengthen over the next six months in line with the nation’s strong macroeconomic fundamentals.
“Looking ahead, the rupiah is expected to continue to improve as the world economy recovers,” Hartadi said.
The country’s export sector will gradually improve and further support the domestic economy, he said.
Imports are also expected to increase, along with investment and production, which could decrease demand for foreign currencies, but the “overall impact will still be positive,” Hartadi said.
The rupiah gained 9.8 percent this year, followed by the South Korean won, which only advanced 2.3 percent. The rupiah hit 9,850 per dollar on Aug. 4, its strongest level since October.
It had strengthened 0.33 percent to 9,960 as of 5.30 p.m. in Jakarta on Friday, according to data compiled by Bloomberg.
Purbaya Yudhi Sadewa, an economist at the state-run Danareksa Research Institute, said that foreign analysts often made mistakes with forecasts for the Indonesian economy due to the use of old or selective economic data.
Other analysts had predicted similar falls in value for this year, “but as you can see it is now below Rp 10,000,” Purbaya said.
Meanwhile, Norbert Walter, an economist with Deutsche Bank, said there was no reason for the rupiah to depreciate, because of the country’s strong macro fundamentals and solid economic management.
The country is not as dependent on exports as its neighbors, insulating it from global conditions, Walter said.
“Our forecast for the end of the year is that the rupiah will stand at around 10,000 per US dollar, with a tendency to appreciate,” he said.
The central bank also protested the negative outlook that ratings agency Moody’s issued for the country’s banking system on Tuesday.
Moody’s lowered its outlook for Indonesian banks for the next 12 to 18 months, saying that their efforts to improve lending could come under pressure moving forward due to increasing pressure from bad loans.
“Currently our banking sector is in a strong position, with high capital-adequacy ratios, low nonperforming loans and solid liquidity, that is why we complained about the outlook,” Dian Ediana Rae, Bank Indonesia’s deputy director for international affairs, said on Friday.
“But luckily, the market and investors saw the outlook rationally - I do not think that there will be a negative effect from it.”
Stewart Newnham, Morgan Stanley’s Hong Kong-based currency strategist, wrote in a research report released on Friday that the rupiah would depreciate because it had been overvalued, Bloomberg reported.
“We believe that the Indonesian rupiah rally has extended beyond what its underlying fundamentals would suggest,” Newnham said.
“The rupiah now looks overvalued, its price momentum is at its limit and there is an indirect risk of unwinding of positions in its equally stretched domestic markets.”
Responding to the Morgan Stanley report, Hartadi A Sarwono, a Bank Indonesia deputy governor, said the rupiah would likely continue to strengthen over the next six months in line with the nation’s strong macroeconomic fundamentals.
“Looking ahead, the rupiah is expected to continue to improve as the world economy recovers,” Hartadi said.
The country’s export sector will gradually improve and further support the domestic economy, he said.
Imports are also expected to increase, along with investment and production, which could decrease demand for foreign currencies, but the “overall impact will still be positive,” Hartadi said.
The rupiah gained 9.8 percent this year, followed by the South Korean won, which only advanced 2.3 percent. The rupiah hit 9,850 per dollar on Aug. 4, its strongest level since October.
It had strengthened 0.33 percent to 9,960 as of 5.30 p.m. in Jakarta on Friday, according to data compiled by Bloomberg.
Purbaya Yudhi Sadewa, an economist at the state-run Danareksa Research Institute, said that foreign analysts often made mistakes with forecasts for the Indonesian economy due to the use of old or selective economic data.
Other analysts had predicted similar falls in value for this year, “but as you can see it is now below Rp 10,000,” Purbaya said.
Meanwhile, Norbert Walter, an economist with Deutsche Bank, said there was no reason for the rupiah to depreciate, because of the country’s strong macro fundamentals and solid economic management.
The country is not as dependent on exports as its neighbors, insulating it from global conditions, Walter said.
“Our forecast for the end of the year is that the rupiah will stand at around 10,000 per US dollar, with a tendency to appreciate,” he said.
The central bank also protested the negative outlook that ratings agency Moody’s issued for the country’s banking system on Tuesday.
Moody’s lowered its outlook for Indonesian banks for the next 12 to 18 months, saying that their efforts to improve lending could come under pressure moving forward due to increasing pressure from bad loans.
“Currently our banking sector is in a strong position, with high capital-adequacy ratios, low nonperforming loans and solid liquidity, that is why we complained about the outlook,” Dian Ediana Rae, Bank Indonesia’s deputy director for international affairs, said on Friday.
“But luckily, the market and investors saw the outlook rationally - I do not think that there will be a negative effect from it.”