UBS’s Nizam Says Tolerance of Inflation a Rupiah Risk

Nizam Idris, a Singapore-based currency strategist at UBS AG, the world’s second-largest foreign-exchange trader, comments on the impact of inflation on Indonesia’s rupiah. 

“We expect the rupiah to appreciate 4.5 percent next year, but this year is a harder call. The risk with the rupiah is more short-term rather than long-term, emanating primarily from inflation and the way Bank Indonesia handles it. Once you’ve passed the inflation issue toward the end of this year, then we see clearer appreciation. 

“Bank Indonesia could afford to be a bit more aggressive, the market would like that. The point is the market dislikes a wishy-washy approach toward handling inflation. When you lose touch with inflation and then you have to catch up on hiking rates aggressively, the risk of outflows from the equity and bond markets will be massive. 

“I’m neutral on the rupiah; unless there’s some weakness and Bank Indonesia reacts with a hike, then that’s where you would want to be opportunistic.” Source: Bloomberg