Rupiah Retreats as Advance Deemed Excessive Amid Global Slowdown

Indonesia’s rupiah retreated from a seven-week high as some traders gauged recent gains excessive given the worsening state of the global economy. Government bonds fell.

A Federal Reserve report showed yesterday manufacturing in New York contracted at the fastest pace since 2009. European Union finance ministers were deadlocked over the timetable for a more unified regional banking sector following a Sept. 14 meeting in Cyprus. The rupiah had its biggest two-day gain since May after the Fed on Sept. 13 announced a third round of asset purchases that boost the supply of dollars.

“The growth picture remains somewhat bleak and people have just been buying into risk because of the stimulus expectations,” said Gundy Cahyadi, an economist at Oversea- Chinese Banking Corp. in Singapore. “The rupiah will trade around the 9,500 level.”

The rupiah declined 0.4 percent to 9,503 per dollar as of 4:34 p.m. in Jakarta, after gaining 1.2 percent in the last two trading days, according to prices from local banks compiled by Bloomberg. It touched 9,447 yesterday, the strongest level since Aug. 1.

One-month implied volatility, which measures exchange-rate swings used to price options, increased 28 basis points, or 0.28 percentage point, to 5.28 percent.

Recent gains in the rupiah were not because of intervention by policy makers but the Fed’s stimulus, Bank Indonesia Governor Darmin Nasution said in Jakarta yesterday. Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.

The yield on the government’s 7 percent bonds due May 2022 rose two basis points to 5.89 percent, according to prices from the Inter Dealer Market Association.

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

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

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