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Continued depreciation seen as Indonesia's best strategy for rupiah

From The Business Times
March 10, 2015

To prevent the often-volatile rupiah from collapsing when United States interest rates begin to rise, analysts say Bank Indonesia should just keep doing what it is doing - let the currency slowly depreciate.

The rupiah is in the spotlight as investors prepare for the Federal Reserve to start lifting rates from near zero as early as June. It is one of Asia's highest-yielding currencies, with a history of turbulence and vulnerability to foreign capital flows.

In 2013, Indonesia's central bank burned up foreign-exchange reserves as the rupiah plunged 21 per cent after then-Fed Chairman Ben Bernanke said its bond-buying would be reduced.

This time should be different, analysts believe, because the economy is stronger. Lower inflation has allowed the central bank to cut rates and Bank Indonesia (BI) has let the rupiah gradually depreciate.

For detailed story, click here.

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