Rupiah drops to six-week low on outlook for slower global growth

[JAKARTA] Indonesia's rupiah fell to a six-week low as concern global growth is slowing and the prospect of a US interest-rate increase damped demand for higher-yielding assets.

The rupiah headed for its biggest weekly decline in almost two months after a gauge of the dollar jumped on Thursday when two Federal Reserve officials made the case for policy tightening.

Overseas investors have cut their holdings of Indonesian bonds by US$313 million this month as weakening demand for the nation's exports reduced the appeal of yields among the highest in Asia.

"We're seeing a bit of unwinding of carry trades and outflows from Indonesian assets," said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd in Singapore. Funds are paring holdings in "high-yielding currencies largely because of waning risk appetite," he said.

The rupiah fell 0.1 per cent to 13,310 per dollar as of 11:30 am in Jakarta on Friday after sliding to 13,342, the weakest level since March 30, according to prices from local banks. The currency has declined 0.5 per cent this week.

Indonesia's current-account deficit narrowed to US$4.7 billion in the first quarter from US$5.1 billion in the previous three months, the statistics department said Friday.

The Bloomberg Dollar Spot Index climbed 0.3 per cent on Thursday after Boston Fed President Eric Rosengren said the central bank should be ready to gradually normalize rates if incoming data remain consistent.

Kansas City Fed's Esther George said current rates are "too low for today's economic conditions."

Indonesian 10-year bonds dropped for a fourth week, with the yield climbing three basis points to 7.80 per cent, according to prices from the Inter Dealer Market Association.

BLOOMBERG