Indonesia’s rupiah forwards gained the most since May 2010 and the onshore spot rate pared losses after the central bank unexpectedly boosted borrowing costs. Stocks and government bonds advanced.
Bank Indonesia raised the reference rate to 7.25 percent, from 7 percent, as predicted by only four of 23 analysts surveyed by Bloomberg. Sixteen economists expected the benchmark to remain steady while three forecast a 50 basis point increase. The rupiah lost 15 percent this year in Asia’s worst performance as the trade deficit widened to a record $2.3 billion in July, weighing on a current account that remained in shortfall for a seventh straight quarter in the three months through June.
One-month non-deliverable forwards surged 2.2 percent in the biggest advance since May 2010 to 11,254 per dollar as of 3:45 p.m. in Jakarta, data compiled by Bloomberg show. The contracts traded at a 0.9 percent premium to the spot rate, which declined 0.1 percent to 11,360 per dollar, after falling as much as 1.6 percent earlier, prices from local banks show. Forwards traded stronger than the spot rate yesterday for the first time since February, having been about 4.5 percent weaker on average in the last two weeks.
“Bank Indonesia policy tightening suggests that they want to slow down imports to address the current-account deficit,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore. “It’s a move in the right direction but the current-account deficit situation is going to take time to fully rectify.”
The yield on the government’s 5.625 percent bonds due May 2023 fell two basis points to 8.67 percent, the lowest level since Sept. 3, according to prices from the Inter Dealer Market Association. The Jakarta Composite (JCI) index of local shares reversed losses after the rate increase, gaining 0.1 percent. PT Bank Mandiri (BMRI), Indonesia’s largest lender by assets, provided the biggest boost for the gauge.
The policy tightening is a “positive” signal from Bank Indonesia that they’re placing the need for currency stability and managing inflation expectations over supporting growth, said John Rachmat, head of research at PT Mandiri Sekuritas in Jakarta, adding that companies that are sensitive to exchange-rate fluctuations are likely to benefit.
Consumer prices rose 8.79 percent last month, the most since January 2009, official data showed Sept. 2. Inflation will touch 9 percent by year-end due to costlier imports, according to Mandiri Sekuritas.
One-month implied volatility on the rupiah, a measure of expected moves in the exchange rate used to price options, fell 93 basis points, or 0.93 percentage point, to 18.03 percent, the least since Aug. 26, data compiled by Bloomberg show. A fixing used to settle the rupiah forwards was set at 11,327 per dollar today, from 11,321 yesterday, according to the Association of Banks in Singapore.
“The currency is stabilizing as exporters are starting to sell dollars as the rupiah has become too cheap,” Muhammad Ikhsan, a Jakarta-based dealer at PT Bank Rakyat Indonesia, said before the central bank’s announcement.