Rupiah Set for Best Week Since January on Central Bank Pledge
Indonesia’s rupiah was poised for its biggest weekly advance since January and bonds rose after the central bank vowed to stabilize the currency.
Bank Indonesia may unveil further measures to ease volatility in the rupiah, Executive Director Edi Setiadi said this week after policy makers pledged last month to start offering term deposits in the U.S. currency. The nation’s foreign-exchange reserves declined to $112 billion in May from $116 billion in April, suggesting that policy makers sold the greenback to support the local currency.
“The rupiah is gaining because investors see our resilience during this crisis,” said Wiwig Santoso, the head of treasury and markets at PT DBS Bank Indonesia in Jakarta. “The reserves are meant to be utilized when necessary. It shows we are managing the market well.”
The rupiah strengthened 1.5 percent this week, the most since the five days ended Jan. 20, to 9,388 per dollar as of 4:02 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It gained 0.7 percent today.
One-month implied volatility, which measures exchange-rate swings used to price options, dropped 313 basis points this week to 12.88 percent. The gauge rose 13 basis points, or 0.13 percentage point, today.
The government’s 7 percent bonds due May 2022 gained for a third week, with the yield dropping two basis points to 6.48 percent, according to prices from the Inter Dealer Market Association. The yield lost one basis point today. Global investors reduced ownership of sovereign notes by 1.2 trillion rupiah ($127 million) this week through June 6, finance ministry data show.
There was “a lot of hot money in Indonesia,” Tim Condon, chief Asia economist at ING Financial Markets, wrote in a note to clients today. “We believe it’s gone and unlikely to return.”
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