Rupiah Set for Worst Week Since 2008 on Current-Account Deficit

Indonesia’s rupiah headed for its worst week since 2008 and government bonds dropped after the country posted a record current-account deficit amid speculation the Federal Reserve will soon start tapering stimulus.

President Susilo Bambang Yudhoyono will unveil policies today to address the situation after global funds pulled $516 million from local stocks this week through yesterday and the Jakarta Composite index of shares fell more than 7 percent. Fed officials said they were “comfortable” with starting to reduce bond buying later this year, according to minutes of their July meeting released this week.

“Sentiment toward possible Fed tapering and the widening current-account deficit drove the rupiah’s weakness,” said Aldian Taloputra, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender. “The government will likely announce incentives to boost direct investment into industries that can replace imports in the long term.”

The rupiah slid 4.2 percent this week, the most since the five days ended Nov. 21, 2008, to 10,840 per dollar as of 9:49 a.m. in Jakarta, according to prices from local banks. The currency declined 0.2 percent today to the weakest level since April 2009. The spot rate traded at a 3.4 percent premium to the one-month non-deliverable forwards, which rallied 1 percent today to 11,209, data compiled by Bloomberg show.

Goldman Sachs Group Inc. cut its 3-month forecast for the rupiah to 12,000 per dollar from 10,000, according to a research note by analysts Mark Tan and Hui Ying Chan released today.

Bonds Fall

A fixing used to settle the forwards set by the Association of Banks in Singapore was at 11,014 yesterday, the weakest since December 2008, from 10,437 on Aug. 16. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 7.67 percentage points this week, the most since September 2011, to 19.44 percent, data compiled by Bloomberg show. It fell 64 basis points, or 0.64 percentage point, today.

Indonesia posted a $9.8 billion current-account shortfall in the second quarter, the largest in data going back to 1989, the central bank said on Aug. 16. Inflation was 8.6 percent in July, the fastest since February 2009, official data show.

The yield on the nation’s bonds due May 2023 rose 22 basis points this week to 8.41 percent, prices from the Inter Dealer Market Association show. It reached 8.54 percent on Aug. 21, the highest level since March 2011, and was steady today.

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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