Indonesia’s
surprise interest-rate increase signals a wider-than-anticipated current
account gap that threatens to deepen the rupiah’s three-week plunge, according
to United Overseas Bank Ltd. and Barclays Plc.
The
rupiah, Asia’s worst performing currency this year, has tumbled 5.7 percent to
11,596 per dollar since trading at a seven-week high Oct. 25. In a move that
was predicted by only one of 25 analysts surveyed by Bloomberg, Bank Indonesia
raised the reference rate to a four-year high of 7.5 percent yesterday, a day
before officials are slated to release third-quarter current account figures.
UOB
says the rupiah will weaken to 11,700 per dollar by year-end. Barclays, (BARC)
the most accurate rupiah forecaster over the past four quarters, says it will
drop to 11,750.
Bank
Indonesia, which has raised its policy rate by 1.75 percentage points in the
past five months, said yesterday’s increase is aimed at narrowing the current-account
gap. The shortfall will be as little as 3.7 percent of gross domestic product
in the third quarter from a record 4.4 percent in the previous three months, it
estimates. Foreign funds pulled $264 million from Indonesian stocks in November
as the improving U.S. economic outlook spurred speculation the Federal Reserve
will cut stimulus as soon as this year.
(Source: Bloomberg)