Funds Outflows Plaguing Rupiah Just Like Indian Rupee

Indonesia’s rupiah headed for the worst month since the global financial crisis of 2008 on concern the U.S. will start cutting stimulus that has buoyed emerging-market assets as early as September.

The currency pared its losses after Bank Indonesia raised its benchmark interest rate yesterday to a four-year high in an unscheduled move to stem exchange-rate weakness. The reference rate was boosted by 50 basis points to 7 percent, before a Sept. 2 report that economists predict will show faster inflation. Global funds pulled 1.02 trillion rupiah ($91 million) from local sovereign debt this month through Aug. 28 and a net $577 million from stocks through yesterday, official data show.

“Bank Indonesia’s move seeks to preempt August inflation, which may reflect the impact of a weaker rupiah,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “The initial market response has been positive, but the rupiah for the most part has been driven by sentiment and broad dollar strength, so the impact may not be immediate.”

The rupiah slumped 5.9 percent in August, the biggest drop since November 2008, to 10,918 per dollar as of 9:16 a.m. in Jakarta, prices from local banks show. It advanced 0.2 percent today following the interest-rate increase and traded at a 4.4 percent premium to the one-month non-deliverable forwards, which fell 8.5 percent in August and gained 0.6 percent today to 11,415, data compiled by Bloomberg show.

Bloomberg

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