FXstreet.com (Barcelona) - According to Senior FX Strategist Khoon Goh at ANZ, “The one currency in Asia that we do not have a positive view on is IDR. Given its sizeable current account deficit, IDR is reliant on portfolio flows.” As it is, Indonesia is already struggling to attract sufficient flows to stem rupiah depreciation. The country is now running a risk of turning away foreign investors given its pro-growth stance, negative real rates and FX depreciation policy.

Bank Indonesia Governor Nasution said this week that he expects GDP growth of 6.3%-6.8% this year, up from an estimated 6.3% growth in 2012. To support growth, loans need to grow by 22%-24% this year, close to the current growth rate. With the overnight FASBI rate at 4.18% and inflation running at 4.3% (upside risk after electricity tariff hikes this month), real interest rates could turn more negative. Foreigners’ holdings of Indonesian bonds have been stagnant at around IDR271 trillion in the past month, down from a record high of IDR274 trillion in early

December (after a strong run-up of IDR37 trillion over September to November). The Jakarta Composite Index (JCI) is the only bourse in Asia with negative USD returns to date this year. The risk is if investor expectations of IDR depreciation become entrenched. “We remain bearish on the IDR until the central bank tightens monetary policy, slows domestic demand growth and takes steps to curb the current account deficit.” Goh warns.