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Rupiah Forwards Fall to Lowest Since April 2009 on Fed Minutes

Rupiah forwards fell to a four-year low as the Federal Reserve signaled it may start reducing the stimulus that has driven investment to emerging-market assets.

The Bloomberg-JPMorgan Asia Dollar Index (ADXY) reached a one-year low today after Fed officials said they are “comfortable” with the plan to start tapering its $85 billion of monthly bond purchases later this year, according to the minutes of the central bank’s July meeting released yesterday. Indonesia will draft policy within two days to address the nation’s economic issues, with the rupiah the main focus, President Susilo Bambang Yudhoyono said yesterday.

“The forwards are pricing in the possibility of Fed tapering in September,” said Rully Nova, a currency analyst at PT Bank Himpunan Saudara 1906 in Jakarta. “The government should allow the rupiah to weaken to adjust imports, which will subsequently help the currency.”

Rupiah one-month non-deliverable forwards fell 2.3 percent to 11,425 per dollar as of 9:52 a.m. in Jakarta, the weakest level since April 2009, data compiled by Bloomberg show. The contracts traded at a 5.6 percent discount to the spot rate, which declined 0.1 percent to 10,788, prices from local banks show. The currency reached 10,818 yesterday, the lowest level since April 2009.

A fixing by the Association of Banks in Singapore used to settle the derivative contracts was set at 10,902 yesterday, the weakest since April 2009. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 1.71 percentage points to 19.73 percent, data compiled by Bloomberg show.

The yield on government bonds due May 2023 was unchanged at 8.46 percent, prices from the Inter Dealer Market Association show. It reached 8.54 percent yesterday, the highest since March 2011.

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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