Rupiah falls toward 1998 low on bond outflows before GDP report

[JARKATA] Indonesia's rupiah fell to near a 17-year low after foreign funds sold the nation's bonds before data forecast to show growth slowing for a second quarter.

Overseas investors pulled a net 6.9 trillion rupiah (S$704 million) from local-currency government debt in a seven-day run of outflows through Monday, the latest Finance Ministry figures show.

Gross domestic product probably increased 4.64 per cent in the three months through June, compared with 4.71 per cent in the first quarter, according to the median estimate in a Bloomberg survey before data due Wednesday.

The rupiah fell 0.2 per cent to 13,518 a dollar as of 9.22am in Jakarta, according to prices from local banks. It reached 13,555 yesterday, the weakest level since August 1998, and is down 8.4 per cent this year in Asia's worst performance after Malaysia's ringgit.

"Investors are concerned that even with all the talk of reform and investment, we haven't seen execution on the ground," said I Made Adi Saputra, a fixed-income analyst at PT BNI Securities in Jakarta. "Markets can rebound if investors think growth and the rupiah has bottomed out, but that may not be the case, especially for the rupiah." BNI Securities sees the Indonesian currency weakening to 13,800 a dollar by year-end and forecasts 2015 growth will be 4.78 per cent, he said said.

Economic expansion in the third and fourth quarters may exceed 5 per cent, Bank Indonesia Governor Agus Martowardojo said on Tuesday, adding that he sees the current-account deficit narrowing to less than 2.3 per cent of GDP in 2015, compared with 2.81 per cent last year.

IMPORT TARIFFS

"The good news is, the current account is narrowing and that could give room for the central bank to cut policy rates come the end of the year," said Edward Teather, a senior economist at UBS AG in Singapore. "The central bank wants to ease, it just needs the window or the right macro economic conditions to do so."

Increases to import tariffs last month may boost inflation by at least 1 to 1.5 percentage points, dashing any hopes for a rate cut this year or next, Hak Bin Chua, an economist at Bank of America Merrill Lynch in Singapore, wrote in a research note released Wednesday.

The yield on government bonds due September 2026 fell one basis point to 8.54 percent, according to the Inter Dealer Market Association. The yield has risen 30 basis points in the past month.

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