Bank Indonesia announced late on Aug. 10 that it will allow overseas investors to hedge their foreign-exchange transactions to as short as one week from three months previously. The monetary authority also raised the minimum interest rate paid on deposits placed with it by 25 basis points to 4 percent. The current-account shortfall widened to $6.9 billion in the second quarter from $2.9 billion in the previous three months and the rupiah lost 4.4 percent this year, the worst performance among Asia’s 11 most-active currencies.
“The regulations should be positive for the rupiah,” said Veni Kriswandi, head of traded risk at PT Bank Commonwealth in Jakarta. “Bank Indonesia is providing all kinds of means to hedge when people want to invest in financial markets.”
The rupiah traded at 9,485 per dollar as of 4:09 p.m. in Jakarta, compared with 9,492 at the end of last week, according to prices from local banks compiled by Bloomberg. The currency reached 9,453 on Aug. 6, the highest level since Aug. 1. One- month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 7.50 percent today.
The increase in the deposit-facility rate should attract more funds and help support the rupiah, said Mika Martumpal, a currency analyst at PT Bank CIMB Niaga in Jakarta.
Twelve-month non-deliverable forwards fell 0.7 percent to 9,993, a 5.1 percent discount to the spot rate, data compiled by Bloomberg showed. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
“We believe the market will take a positive view on the steps that Indonesia’s policy makers have announced to cope with the nation’s current-account deficit,” Morgan Stanley analysts Hozefa Topiwalla and Trong Tri Tran wrote in a report today. “Yet we still believe these small steps in the right direction do not eliminate the potential risk of portfolio flows and current-account deficit-led currency volatility in the second half.”
The yield on the government’s 6.25 percent bonds due April 2017 climbed eight basis points, or 0.08 percentage point, to 5.46 percent, according to prices from the Inter Dealer Market Association.
Short-term bond yields maturing in up to five years will climb by 20 to 25 basis points after policy makers adjusted the deposit-facility rate, Barclays analysts Kumar Rachapudi and Rohit Arora wrote in a report today.
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