Flash: Indonesian rupiah likely to have entered bearish cycle - TDS

FXstreet.com (Barcelona) - Despite the Bank Indonesia decided to hike the reference rate by 50bp to 6.50% yesterday, and the overnight deposit (FASBI) rate by the same magnitude to 4.75%, "the rupiah is likely to have entered a bearish cycle that may last into 2014" says Marcin Budkiewicz, Strategist, Rates and FX Research at TD Securities.

Budkiewicz adds: "As long as the market sells IDR, BI will have to intervene in the market to provide dollar liquidity to onshore players. BI is trying to provide adequate liquidity in the onshore market, but the sharp rise in the spread between spot IDR and 1m NDFs shows that this isn’t working well and it is causing remarkable increase in volatility. For these reasons, we forecast USD/IDR at 10180 in Q3 and 10200 in Q4, and lower at 9865 by end- 2014. We are not attracted to IDR longs, look to buy USD on dips."