Hurdles still block Indonesia`s financial market: Economists

One of the factors is worries over U.S. plan to raise its interest rate, and the increase in the US interest may come earlier than expected by the market.
Surabaya, East Java (ANTARA News) - Many hurdles will still block Indonesian financial market weakening rupiah against the US dollar in 2015, an economist predicted.

Alexander Eric Sugandi, an economist of Standard Chartered Bank Indonesia said one of the factors is worries over US plan to raise its interest rate.

The increase in the US interest may come earlier than expected by the market,Alexander said here on Wednesday.

He predicted that rupiah would continue to trade at the level of 12,000 per dollar until the middle of 2015.

On Wednesdays morning trade rupiah gained slightly trading at the level of 12,140 per dollar from earlier level of 12,200.

He said currently the US economic condition began to recover from years of being in the doldrums.

Therefore, there are worries that the United States would raise its interest rate especially as the US central bank began to cut it fund injection and the injection would be stopped in November, he said.

"This would weigh not only on rupiah but also on the currencies of other emerging markets," he said.

Another hurdle putting pressure on rupiah is the country current account deficit, especially as Bank Indonesia (BI) is not very tight in protecting rupiah, he said.

"Mr Agus Martowardoyo (Bank Indonesia governor) and Mr Darmin Nasution (former governor of the central bank) are different in style. Mr Agus tolerates rupiah weakening as long as it is still in fundamental value," he said.

Rupiah fall will result in slowdown in imports as the cost of imports would be more expensive.

"We predict , under such condition, rupiah will remain at the level of 12,200 per dollar until the end of 2014. By the end of the first half of 2015, rupiah value would even fall to 12,500 per dollar," he said.

However, in the second half of 2015, rupiah would begin to recover as the countrys current account deficit is expected to fall from the present position of 2.9 percent, he predicted

"By the end of the second half of 2015 we predicted rupiah will gain more strength to reach the level of around 11,900 per dollar.

The fundamental value of rupiah is expected to remain at around 12,200 - 12,000 in the remaining months of the year, he said. (*)