Rupiah Set for Longest Losing Streak Since November on Outflows

Indonesia’s rupiah was poised for a third weekly decline, the longest losing streak since November, as global funds sold the nation’s assets on concern inflation will accelerate and the fiscal deficit will widen.

The currency traded near a seven-week low as the benchmark equity index dropped. Overseas investors have cut 2.1 trillion rupiah ($216 million) from their sovereign debt holdings from a record 284.9 trillion on March 14, according to finance ministry data. The 2013 budget shortfall may exceed 2 percent of gross domestic product due to high subsidy costs, exceeding the 1.65 percent target, Finance Minister Agus Martowardojo said March 19.

“The rupiah’s weakening is driven by negative sentiment on Indonesia,” said Fahrudin Haris Prastowo, a foreign-exchange trader at PT Bank Rakyat Indonesia in Jakarta. “Inflation will likely accelerate and the budget deficit is still burdened by subsidies, which is causing concern among foreign investors.”

The currency declined 0.5 percent this week to 9,757 per dollar as of 9:08 a.m. in Jakarta, the biggest drop since the five days ended Feb. 1, according to prices from local banks. It fell 0.3 percent today and touched 9,770 earlier, the weakest level since Feb. 4.

One-month non-deliverable forwards dropped 0.6 percent this week and 0.1 percent today to 9,798, a 0.4 percent discount to the spot rate, data compiled by Bloomberg show.

Yield Curve

A daily fixing used to settle the derivatives was set at 9,730 per dollar yesterday by the Association of Banks in Singapore, compared with 9,733 the previous day. The rate is published at 11:30 a.m. in the city-state each day.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, lost 22 basis points, or 0.22 percentage point, to 5.96 percent this week. It rose five basis points today.

Overseas investors sold $65 million more Indonesian shares than they bought this week, exchange data show. The Jakarta Composite index fell 0.4 percent, adding to last week’s 1.1 percent decline.

The government’s priority is to limit subsidized-fuel usage and increasing prices isn’t the emphasis, Finance Minister Martowardojo said in Jakarta yesterday. Consumer prices gained 5.31 percent in February, the most in 20 months.

The difference in yield between two- and 10-year bonds widened six basis points this week to 118 basis points, the biggest gap since June. Longer-maturity notes are more sensitive to inflation expectations. The yield on the 5.625 percent securities due May 2023 was at 5.48 percent, the highest level since Nov. 12, prices from the Inter Dealer Market Association show.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net

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

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