(Bloomberg) — The Indonesian rupiah has broken above the key 16,000-per-dollar level after the greenback weakened and the government earlier sought to calm investor fears about the new administration’s fiscal policies.
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The currency rose 0.4 percent to 15,975 against the dollar on Thursday, breaking the psychological barrier for the first time since May 22. The rupee was one of the worst-performing Asian currencies last year as investors were unsettled by concerns about a wider fiscal deficit.
The rebound comes as President-elect Prabowo Subianto’s team seeks to calm concerns about public debt and fiscal policy, pledging to maintain spending caps. The prospect of a US interest rate cut as early as September is also adding to sentiment. The currency has gained more than 2% this quarter, putting it among the best performers in emerging Asia.
A drop below 16,000 rupiah per dollar could increase the likelihood of a rate cut by Bank Indonesia later this year, as the central bank views currency stability as a precursor to monetary easing. The rupiah’s fundamentals are stronger than 16,000 per dollar, Governor Perry Warjiyo said in June.
The currency could test the level briefly and may not sustain a breakout, said Alan Lau, strategist at Malayan Banking Bhd. in Singapore. “We are entering a period of heightened volatility amid uncertainty over the US election, seasonally weaker months for risk assets and concerns about a recession in the US.”
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