Resur­gence gath­ers pace as global in­vestors pile in

The Myanmar Times - - Business -

THE re­turn of yield-hun­gry in­vestors is sig­nalling the worst may be over for In­done­sia.

Global funds are pil­ing back into Asia’s bell­wether for emerg­ing mar­kets, buy­ing $795 mil­lion of debt so far this year and send­ing yields down about 90 ba­sis points from their Oc­to­ber peak as the Fed­eral Re­serve looks to take a more cau­tious ap­proach to pol­icy tight­en­ing. That’s spell­ing re­lief for the ru­piah and Bank In­done­sia, which spent most of 2018 seek­ing to stem an ex­o­dus of for­eign cap­i­tal amid a rout in de­vel­op­ing-na­tion as­sets.

Af­ter plung­ing al­most 9pc over the first nine months of last year, the cur­rency roared back in the fourth quar­ter as In­done­sia raised in­ter­est rates to 6pc, in­ter­vened in the for­eign-ex­change and bond mar­kets and curbed im­ports to help rein in the trade gap. The re­bound has shown no signs of fad­ing in 2019. The ru­piah is al­ready up 2.4pc -- tops in the re­gion -- and cen­tral bankers have sig­nalled a will­ing­ness to let the cur­rency strengthen fur­ther, ac­cord­ing to PT Ba­hana Seku­ri­tas.

“At the mo­ment, BI ap­pears more in­clined to push for ru­piah ap­pre­ci­a­tion to lure for­eign in­flows, rather than to keep the ru­piah un­der­val­ued to curb im­ports and boost ex­ports,” Sa­tria Sam­bi­jan­toro, an economist at the Jakarta-based bro­ker, wrote in a Jan 9 note to clients. “The one-way strength­en­ing of the ru­piah should make In­done­sian as­sets very ap­peal­ing among for­eign in­vestors.”

Even if Bank In­done­sia leaves its bench­mark rate un­changed at its Thurs­day pol­icy meet­ing, money man­agers are once again be­ing drawn to what re­main some of the high­est yields in Asia. With 10-year se­cu­ri­ties pay­ing about 7.98pc and in­fla­tion hover­ing just above 3pc, the coun­try of­fers an en­tic­ing real rate, par­tic­u­larly amid a re­assess­ment of de­vel­oped mar­ket tight­en­ing.

Not only has BI sig­naled con­tin­ued sup­port for the ru­piah, but it’s also try­ing to tackle the cur­rency’s Achilles heel -- the na­tion’s de­te­ri­o­rat­ing cur­rent-ac­count deficit.

At its last meet­ing on Dec 20, the cen­tral bank high­lighted that “the pol­icy rate is still con­sis­tent with ef­forts to re­duce the cur­rent-ac­count deficit to a safe level and main­tain the at­trac­tive­ness of do­mes­tic fi­nan­cial as­sets.’

These fac­tors have helped buoy the cur­rency. Dol­lar-ru­piah breached its 200-day mov­ing av­er­age on Jan 4 be­fore bounc­ing off sup­port around 14,000 per dol­lar last week. Still, the pair ap­pears to be headed lower neart­erm given mo­men­tum in­di­ca­tors -- such as slow stochas­tics and mov­ing-av­er­age con­ver­gence-di­ver­gence -- re­main in bear­ish ter­ri­tory.

If Bank In­done­sia con­tin­ues to fo­cus on cur­rency sta­bil­ity at its up­com­ing meet­ing, a test of sup­port at the June 6 low of 13,837 per dol­lar looks to be on the hori­zon. –

Photo: EPA

An In­done­sian ex­change em­ployee holds In­done­sian Ru­piah ban­knotes at a money ex­change point in Medan, North Su­ma­tra, In­done­sia.

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