Indonesia Rate Rise Signals No Current-Account Relief for Rupiah

 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)