Rupiah to fall further despite fresh measures: UOB
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The Indonesian rupiah is expected to weaken further against US dollar despite the new measures announced yesterday to stem the currency's sharp depreciation, said UOB Research.
In a research note, its economist Ho Woei Chen said the rupiah should fall further on the back of weak commodity prices, persistent current account deficits and in general, and firmer dollar against the regional currencies driven by US rate normalisation expectation.
He expected the rupiah to fall to 14,700 by the end of this year and 14,800 by the end of the first quarter of next year.
The rupiah ended yesterday at 14,650 per dollar - its 17-year low, depreciating by 15.5 per cent against dollar so far this year.
All currencies in the Southeast Asia have weakened against US dollar in recent months, including the Thai baht which has weakened by 10 per cent so far this year. Gaining slightly on Wednesday, the baht today weakened again to Bt36.36 per dollar as of 1.41pm. The Malaysian ringgit is another worst-performing currency, falling by more than 15 per cent.
Due to the depreciation pressure, Indonesia's central bank has rolled out various measures since the start of the year, including hedging requirements for corporates with foreign currency external debts and the mandatory use of the rupiah for all cash and non-cash domestic transactions in the country.
Yesterday, further measures were announced, focusing on management of the supply and demand for the currency. The rupiah supply will be reduced while the supply of foreign currencies will be increased. The central bank will also start to intervene in the forward market to manage the expectation of the rupiah in the spot market and as corporates’ hedging requirements increase amid the market volatilities. To encourage more forward selling of foreign currencies, the central bank will raise the forward selling threshold for transactions of foreign currencies/rupiah that requires an underlying document from US$1 million to $5 million per transaction per customer and broaden the scope of underlying assets for forward sells to include domestic and offshore foreign currency term deposits.
Non-deliverable forwards (NDF) fell overnight in response to the announcement: in the NDF market, 1-year USD/rupiah has eased to around 16,497 from 16,691 on Wednesday.
