Danamon: Indonesian Rupiah May Rise 7% on Slowing Imports

JAKARTA- Indonesia’s rupiah will rise 7 percent by year-end as imports shrink with the economic slowdown and push the current-account into surplus, according to PT Bank Danamon.

The currency will also strengthen as investors become more willing to take risk as the credit crisis wanes in 2009, Helmi Arman, an economist in Jakarta at the Indonesian bank, said in a telephone interview today by Bloomberg. The rupiah slumped 14 percent in 2008, the third-worst performance among the 10 most-active Asian currencies outside of Japan. Only South Korea’s won and the Indian rupee lost more.

“Exports may contract, but imports could also shrink to a larger magnitude, thereby providing some cushion,” said Helmi, confirming the contents of a research report sent to clients yesterday. “The de-leveraging by global investors is not going to go on forever.”

PT Bank Danamon, which is controlled by Singapore’s Temasek Holdings Pte and Deutsche Bank Ag, forecasts the rupiah will advance to 10,200 per dollar by Dec. 31. That’s more bullish than the median estimate of 11,000 among 22 finance firms surveyed by Bloomberg News. The currency traded at 10,990 as of 2 p.m. in Jakarta.

Indonesia’s current-account deficit narrowed in the third quarter to $564 million from $1.24 billion in the prior three months, Bank Indonesia said in a statement on its Web site on Dec. 6. The current account is the broadest measure of trade because it tracks trade, services and investment flows.

‘Not Groundless’

The rupiah reached a decade low of 13,150 in November as a global recession deterred investment in emerging-market assets.

Bank Indonesia Governor Boediono said yesterday that exports and imports are expected to slow this year, resulting in the current-account deficit reaching 0.1 percent of gross domestic product.

“Such concerns are not groundless, but we think the accompanying fall in imports is likely to prevent the current account going deep into negative territory,” Helmi wrote in the report. “What we have in mind is a widening of the current- account surplus from 0.1 percent of GDP in 2008 to 1 percent of GDP in 2009.”