Rupiah Touches 2009 Low Amid Fuel Subsidy Delay; Bonds Advance

Indonesia’s rupiah fell to the weakest level since September 2009 after foreign funds pulled money from the nation’s assets amid a delay in cutting fuel subsidies that has undermined investor confidence. Bonds gained.

The rupiah fell 0.3 percent to 9,886 per dollar as of 9:30 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It touched 9,925 earlier, the weakest since Sept. 15, 2009. One-month non-deliverable forwards dropped 1.2 percent to 10,230, trading at a 3.4 percent discount to the spot rate.

Overseas investors withdrew $1.3 billion from local stocks this month on speculation the Federal Reserve will reduce asset purchases that have fueled fund flows to emerging markets. The government has still not cut fuel subsidies, which have put pressure on the country’s budget and current-account deficits, after saying in January prices may be adjusted. Bank Indonesia will hold its benchmark rate at 5.75 percent today, according to all 19 analysts surveyed by Bloomberg.

“Crucially, the government will have to demonstrate ability to rationalize the fuel subsidy burden, amongst other reforms to rein in current-account and budget deficits,” said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. “The risk of the rupiah falling to 10,500 to 11,000 per dollar cannot be discounted,” should the dollar’s broader rally continue.

Fasbi Raised

The Dollar Index, which measures the greenback against six major partners, has rallied 4.5 percent since May 22, the day Fed Chairman Ben S. Bernanke said bond buying could be reduced.

Bank Indonesia raised the deposit facility rate, known as the Fasbi, by a quarter of a percentage point to 4.25 percent yesterday, in what it described as a preemptive move to maintain monetary stability. Fuel prices will be lifted after the 2013 budget revision is finished by June 17, Coordinating Minister for the Economy Hatta Rajasa said last week.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, climbed nine basis points, or 0.09 percentage point, to 13.73 percent, taking its gain this month to 5.1 percentage points.

The yield on the 5.625 percent bonds due May 2023 fell one basis point to 6.51 percent, after sliding 17 basis points yesterday, according to the Inter-Dealer Market Association.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

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

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