Indonesia’s rupiah fell toward a 17-year low after foreign funds sold the nation’s bonds and data showed the economy grew at the slowest pace since 2009 last quarter.
Overseas investors pulled a net 6.9 trillion rupiah ($510 million) from local-currency government debt in a seven-day run of outflows through Monday, the latest Finance Ministry figures show. Gross domestic product increased 4.67 percent in the three months through June, compared with 4.71 percent in the first quarter, according to a report released Wednesday.
The rupiah fell 0.2 percent to close at 13,515 a dollar, according to prices from local banks. It reached 13,553 on Monday, the weakest level since August 1998, and is down 8.4 percent this year. The only Asian currency to have performed worse is Malaysia’s ringgit.
“Investors are concerned that even with all the talk of reform and investment, we haven’t seen execution on the ground,” said I Made Adi Saputra, a fixed-income analyst at PT BNI Securities in Jakarta. “Markets can rebound if investors think growth and the rupiah has bottomed out, but that may not be the case, especially for the rupiah.”
BNI Securities sees the Indonesian currency weakening to 13,800 a dollar by year-end and forecasts 2015 growth will be 4.78 percent, Saputra said.
Bank Indonesia will allow exchange-rate flexibility to conserve foreign reserves for when the U.S. begins raising interest rates, Nanang Hendarsah, a director at the monetary authority, said by text message on Wednesday.
Import Tariffs
Although growth probably won’t slow much more, there isn’t much chance for a rebound, Gareth Leather, an economist at Capital Economics Ltd. in London, wrote in a research note Wednesday. Leather lowered his full-year growth prediction to 4.7 percent from 5 percent.
Economic expansion in the third and fourth quarters may exceed 5 percent, Bank Indonesia Governor Agus Martowardojo said on Tuesday, adding that he sees the current-account deficit narrowing to less than 2.3 percent of GDP in 2015, compared with 2.8 percent last year.
“The good news is, the current account is narrowing and that could give room for the central bank to cut policy rates come the end of the year,” said Edward Teather, a senior economist at UBS AG in Singapore. “The central bank wants to ease, it just needs the window or the right macro economic conditions to do so.”
Increases to import tariffs last month may boost inflation by at least 1 to 1.5 percentage points, dashing any hopes for a rate cut this year or next, Hak Bin Chua, an economist at Bank of America Merrill Lynch in Singapore, wrote in a research note released Wednesday.
The yield on government bonds due September 2026 fell two basis points to 8.53 percent, according to the Inter Dealer Market Association. The yield has risen 29 basis points in the past month.
original source: http://www.bloomberg.com/news/articles/2015-08-05/rupiah-falls-toward-1998-low-on-bond-outflows-before-gdp-report