JAKARTA (TheInsiderStories) – Senior Economist for ASEAN at UBS Edward Teather sees Indonesian Rupiah could bounce back towards the level of Rp13,000 against U.S dollar, after recording a decline since last week. Based on Indonesian central bank data, Rupiah continues to drop to Rp13,750 per US dollar until today (7/3).
The Indonesian currency rupiah declined on the first trading day of the March after finishing the month of February with losses. The rupiah also tracked the declines of regional currencies in the previous session.
Commenting on this situation, President Joko Widodo has warned his ministers to watch closely the global economy and asked them to consolidate and improve coordination in driving the economic growth and help boost investors’ confidence to invest in Indonesia.
He, therefore, asked Bank Indonesia to take actions to control the Rupiah movement.
TheInsiderStories interviewed Edward Teather to try to figure out his views on Indonesian economy on the sideline of UBS Conference in Jakarta recently. Following is the excerpt of the interview:
Q: President Joko Widodo has said Indonesia’s GDP has reached US$1 trillion. How do you see Indonesia’s future?
A: Indonesia gets to that number by growing in a stable fashion steadily over time, so Indonesia continue to manage its fiscal and monetary policy prudently and continue to invest in the future through high capital equipment investment – and invest in work and labor force. And, it’s good reason to surpass two, three or four million dollars in coming years.
Q: What Indonesian government should do to reach the target?
A: To encourage support and facilitate (business players) doesn’t have to do everything by itself. However, they have to create the right environment to help Indonesia invest in capital equipment and invest in themselves. That’s how you grow over time, increase productivity by investment and better-used of technology.
Q: Do you expect big fall in Indonesian Rupiah or stocks this year?
A: In term of the rupiah, there are few reasons not to expect a big decline from here – what I said big decline here is when the rupiah hit Rp8,000 in 2000, from the current level of Rp13,000. We are not looking at a very big decline in rupiah for a couple of reason. One reason is that we are in a healthy global growth environment. We do expect Indonesia’s growth can usually attract capital flow.
Also Indonesia has enjoyed a relatively low phase of credit growth in recent times, which means that there has been a lot of rupiah creation on the part of the banking system, the supply of rupiah is going to put double pressure on the currency. Finally, at present Indonesia is not running a big current account deficit, which usually can weaken the rupiah.
Q: When will we see the bounce back of rupiah?
A: We don’t have the ability to forecast the currency, from that sort of time frame. It makes sense based on the broad matrix that we look at for the currency that keeps going in a big way in one direction or recover to Rp13,000. I don’t know exactly when, but that it is going to recover by the end of the year.
Q: Will there be any impact of regional elections this year to the economy?
A: Typically, in many countries in the election year, when people try to get elected, they will spend out their pocket and spend it a little bit in advertising. So usually, the election is good for growth. But also sometimes people or investors get nervous in the political year, with government change, policies change. We don’t know what the result of the election would be. If investors continue to believe things will not change, the level uncertainty will be low.
Q: Do investors still believe that President Joko Widodo will once again win in the second race?
A: It’s difficult to tell what is investors are hoping because the expectations are different.
Q: Is market ready with The Fed’s plan to raise the rate four times this year?
A: We think Fed’s rate hike is not completely broadly price into the US yield curve, so we don’t expect the ten-year bond yield to move much above 2.9 per cent level.
Q: Do you think the 10-year recession cycle will eventually happen this year?
A: We don’t think there is any reason to think there is recession cycle caused by economy overheating or sharp change in global financial economic environment. And at the moment we don’t see Indonesia’s economy is overheating this time.
Q: How much the consumption rate will grow this year?
A: We do forecast consumption growth picking up somewhere by around 5.5 per cent this year. Because we already see investment growth pick up to 7 per cent, and statistically when investment pick up you can see the consumption pick up as well. When companies invest, they have to hire more workers. So, there is a driver.