Rupiah Falls to Weakest Since June 2009 After Reserves Decline

Indonesia’s rupiah touched a four-year low after the nation’s foreign-exchange reserves fell for a third month, reducing the scope for the central bank to support the currency. Government bonds dropped for a fourth day.

Reserves declined $5.4 billion to $92.7 billion last month, the least since October 2010, Bank Indonesia reported late yesterday. The monetary authority will hold its benchmark rate at 6.5 percent today, according to 16 of 25 economists surveyed by Bloomberg. Seven forecast a 25 basis point rise and two see a 50 basis point increase.

“There is no strong reason to drive a rebound in the rupiah,” said Fahrudin Haris Prastowo, a fixed-income trader at PT Bank Rakyat Indonesia in Jakarta. “Bank Indonesia has allowed the currency to weaken and trade more in line with market mechanics as it can’t afford to deplete the reserves (IDGFA) further.”

The rupiah declined 0.2 percent to 10,313 per dollar as of 9:22 a.m. in Jakarta, according to prices from local banks. The currency reached 10,315 earlier, the weakest level since June 2009, and has lost 3.8 percent this quarter. The spot rate traded at a 1.4 percent premium to the one-month non-deliverable forwards, which advanced 0.1 percent to 10,453, data compiled by Bloomberg show.

A fixing by the Association of Banks in Singapore used to settle the derivative contracts was set at 10,321 yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 22 basis points to 11.55 percent, according to data compiled by Bloomberg.

Bonds Drop

Bank Indonesia will ensure currency stability and won’t keep the rupiah at a certain level, Governor Agus Martowardojo said Aug. 12. Consumer prices gained 8.6 percent in July from a year earlier, the most since February 2009, official data show.

“The main reason for Bank Indonesia to raise rates is inflation, but after the forex data this will be an additional factor,” said Eric Alexander Sugandi, economist at Standard Chartered Plc in Jakarta.

The yield on government bonds due May 2023 rose four basis points, or 0.04 percentage point, to 7.94 percent, the highest level since July 30, data from the Inter Dealer Market Association show.

To contact the reporters on this story: Yudith Ho in Jakarta at yho35@bloomberg.net; Novrida Manurung in Jakarta at nmanurung@bloomberg.net

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

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