Rupiah Slides to Four-Year Low, Bonds Decline Before Fed Minutes

Indonesia’s rupiah fell to a four-year low and government bonds declined on concern the U.S. is preparing to scale back policies that helped boost demand for emerging-market assets.

The yield on 10-year debt rose to the highest level since March 2011 before the Federal Reserve publishes today minutes of its July meeting that may show whether it plans to reduce its asset purchases as early as next month. Bank Indonesia will remain in the currency and bond markets to stabilize the rupiah, which is under pressure due to the Asian nation’s current-account deficit and the prospect of Fed stimulus reduction, Deputy Governor Perry Warjiyo said late yesterday.

“Most of the domestic negative stories have been priced in, but the impact of FOMC minutes is still a concern,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas, unit of nation’s largest bank. “The central bank is allowing rupiah weakness to reduce imports and improve the current account.”

The rupiah declined 0.7 percent to 10,755 per dollar as of 10:38 a.m. in Jakarta, the lowest level since April 2009, prices from local banks show. The currency touched 10,758 earlier, the weakest level since April 30. It traded at a 5.4 percent premium to the one-month non-deliverable forwards, which fell 2.4 percent to 11,335 per dollar, data compiled by Bloomberg show. The contracts reached a four-year low of 11,355 earlier.

Rising Volatility

A fixing by the Association of Banks in Singapore used to settle the derivative contracts was set at 10,902 today, the lowest since April 2009. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 78 basis points, or 0.78 percentage point, to 15.86 percent, according to data compiled by Bloomberg.

Indonesia hired Citigroup Inc., Standard Chartered Plc and Deutsche Bank AG to hold bond investor meetings in Europe and the Middle East for its planned dollar sukuk starting Aug. 23, according to a person familiar with the matter who asked not to be identified as the details are private.

The yield on the nation’s bonds due May 2023 climbed two basis points to 8.51 percent, the highest level since March 2011, 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: Amit Prakash at aprakash1@bloomberg.net

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