One Asian market’s quickening inflation splits it from the pack

by BLOOMBERG

Singapore • Indonesia’s inflation numbers for May are forecast to highlight the rupiah’s improving fortunes and show why the currency may outperform many of its Asian peers this year after ending 2018 near the bottom of the league table.

Economists predict the data due today will show consumer prices climbed 3.15% last month from a year earlier, the quickest pace since November, while core inflation edged up to 3.08%, the most since the middle of 2017, according to estimates compiled by Bloomberg.

If the projections prove accurate, that should help damp down any speculation Bank Indonesia (BI) is poised to leap on the rate-cut bandwagon any time soon. With Treasury yields falling as investors price in the US Federal Reserve easing, the widening premium of Indonesian rates over US ones is poised to underpin the Asian nation’s currency.

The widening rate differential is also helping the rupiah by encouraging foreign inflows into Indonesia as investors seek carry trades. The central bank’s focus on stabilising the currency is serving to limit the risk to traders who use this strategy.

BI has been intervening in the market for spot, domestic non-deliverable forwards and local bonds to maintain exchange-rate stability, governor Perry Warjiyo said last month.

S&P Global Ratings has helped burnish the rupiah’s appeal by up- grading its assessment of Indonesia’s sovereign debt at the end of May, citing the nation’s strong growth prospects and prudent fiscal policy.

While dollar-rupiah has remained in a range of 13,898 to 14,528 this year, the pair may be poised to test support at the lower boundary of that band if this week’s inflation data bolsters the likelihood of rates staying on hold.

The pair closed at 14,273 on May 31. Today may be a busy day for Indonesia’s currency as it plays catch-up after being shut all of last week for the Hari Raya holidays. By the end of today though, the rupiah may be well positioned to challenge for the top spot in Asia before the quarter is done.

Below are key Asian economic data and events due:

• Today, June 10: Japan balance of payments current-account balance, first-quarter (1Q) GDP; China trade balance; Indonesia consumer price index (CPI).

• Tuesday, June 11: National Australia Bank business confidence; New Zealand (NZ) 1Q manufacturing activity; Philippines trade balance; Malaysia industrial production.

• Wednesday, June 12: Reserve Bank of Australia’s assistant governors Christopher Kent and Assistant Governor Luci Ellis speak; Australia Westpac Banking Corp consumer confidence; South Korea unemployment; NZ retail card spending; Japan core machine orders, producer price index (PPI); China CPI, PPI; Indonesia consumer confidence; Singapore retail sales; India CPI, industrial production.

• Thursday, June 13: Australia employment; Japan business sentiment index large manufacturing.

• Friday, June 14: NZ business manufacturing Purchasing Managers’ Index ; Japan industrial production; China retail sales, industrial production, fixed assets.