Weakening rupiah to keep investment growth sluggish in 2015

It lost almost 2% against the dollar on Monday.

The USD/IDR touched the 12700 level, not seen since 1998.

According to a report by DBS, Bank Indonesia officials offered plenty of verbal intervention as the central bank tried to calm the markets. BI also tried to reduce volatility by intervening in both the currency and IDgov bond markets.

DBS adds that a weak rupiah is one factor that may keep investment growth sluggish in 2015. As previously discussed, lackluster investment growth is behind the lower-than-expected GDP growth this year.

Here’s more from DBS:

Note that imports of capital goods are down by some 6% in 2014. While data out of the past 2 months have been rather encouraging, it is probably still too early to call for a bottoming out in imports of capital goods. A close monitoring is warranted on this front.

Our current GDP growth forecast for 2015 stands at 5.5%. This is based on our expectation for an accelerated fiscal spending and some recovery in private investment growth. Excessive volatility in the rupiah is likely to be a negative, as far as sentiment in investment is concerned.

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