Rupiah Forwards Decline Amid Current-Account Deficit Concern

Indonesia’s rupiah forwards fell to the lowest level in more than two weeks on speculation measures announced last week will do little to narrow the nation’s widest current-account deficit in at least five years.

Bank Indonesia said on Aug. 10 it was allowing overseas investors to hedge their foreign-exchange transactions for as short as one week and raised the minimum deposit facility rate by 25 basis points to 4 percent to help curb the shortfall. The current-account deficit was $6.9 billion in the second quarter, official data show.

“In the near term, it’s hard to see the current-account deficit narrow significantly,” said Irene Cheung, a currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore. “We are bearish on the rupiah.”

The currency’s twelve-month non-deliverable forwards declined 0.1 percent to 9,995 as of 3:17 p.m. in Jakarta, a 5.1 percent discount to the spot rate, data compiled by Bloomberg showed. The contract reached 10,015 today, the weakest level since July 26. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

The rupiah was unchanged at 9,485 per dollar, according to prices from local banks compiled by Bloomberg. It has weakened 4.4 percent this year, the second-worst performance among Asia’s 11 most-active currencies. One-month implied volatility, which measures exchange-rate swings used to price options, dropped 35 basis points, or 0.35 percentage point, to 7.15 percent.

‘High Risk’

“We see the current-account deficit persisting early in the third quarter, with a high risk of the trade deficit breaching $2 billion in July, after the record $1.3 billion in June,” Chua Hak Bin, an economist at Bank of America Corp.’s Merrill Lynch division in Singapore, wrote in a report yesterday. “Our forecast is for the current-account deficit to remain at about 3 percent of GDP in the third quarter, despite the current set of measures.”

The yield on the government’s 6.25 percent bonds due April 2017 was little changed at 5.48 percent, according to prices from the Inter Dealer Market Association.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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