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Standard Chartered Bank Sees Rupiah Under Pressure from Euro Debt Crisis
Muhamad Al Azhari | January 30, 2012

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Standard Chartered Bank said the rupiah’s recent strengthening against the dollar was caused by euphoria from Moody’s Investors Service credit-rating upgrade on Indonesia two weeks ago.

But the lender warned that Indonesia’s currency might be under pressure in the short term from the debt crisis in the euro zone before strengthening again by the end of 2012.

The rupiah exchange rate “has bounced in recent sessions amid euphoria following the Moody’s rating upgrade,” said the British-based lender, which gets two thirds of its income from Asia.

However, a report by Stanchart on Monday says that during the “near-term, the rupiah is vulnerable to positioning and liquidation dynamics.”

The bank’s analysts said the mounting euro zone crisis could prompt investors to put money in assets deemed as safe haven.

Stanchart forecasts the rupiah exchange rate against the dollar to weaken to Rp 9,400 per dollar at the end of the first quarter of 2012. The lender predicted the rupiah at 8,700 by the end of the year. Moody’s raised Indonesia’s bond ratings to investment grade on Jan. 18. The rupiah has gained 2 percent since that upgrade. It closed at 8,985 on Monday.

Stanchart said that the ratings upgrades, “together with Indonesia’s solid growth and external balances, should support the rupiah over the medium to long term,” without specifying timeframes.

Stanchart forecasts Bank Indonesia, the central bank, to cut its key overnight interest rate by another 25 basis points sometime during the first half in a bid to maintain economic growth.

“Indonesia’s strong fundamentals and fiscal position will encourage inflows over the longer term,” the bank said.

Fitch Ratings last month raised Indonesia’s long-term and local currency debt rating, to BBB-, putting the country into investment grade for the first time in 14 years. The outlook on both ratings is stable, Fitch said.