From Government of Indonesia

Rupiah to Rise 7% - HSBC

The rupiah will climb 7% by year-end as the central bank's reduction of interest rates to 9.25% attracts global equity funds, said HSBC Holdings Plc.

Stock buying by overseas investors will outweigh sales by bondholders as lower yields reduce the appeal of fixed-income assets, said Richard Yetsenga, a currency strategist at HSBC in Hong Kong. The extra yield investors receive for buying 10-year rupiah-denominated bonds over similar-dated US Treasuries has dropped by more than half in the past 18 months.

“The currency is not reliant on fixed-income flows as now, equity flows have become more important,” he said Tuesday (6/2/07), according to Bloomberg News. “Rate cuts are going to be good for equity inflows as they'll be good for growth.”

A record trade surplus also will boost the currency, said Yetsenga. The gap between imports and exports widened to an all-time high $4.56 billion in December, a government report showed February 1.

“The surplus has reached such a level that there will be a lot of flows back from exports, even if all the profits earned are not returned into rupiah,” he said.

HSBC sees Bank Indonesia (BI) reducing its benchmark by another 25 basis points this year from the current 9.25%, spurring economic growth.
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