Indonesia’s rupiah surged the most in 15 months, stocks jumped and government bonds gained after the Federal Reserve unexpectedly refrained from reducing stimulus that has spurred inflows to emerging markets.
The currency rose 1.7 percent to 11,281 per dollar as of 10:03 a.m. in Jakarta, the biggest advance since May 30, 2012, prices from local banks show. In the offshore market, the one-month non-deliverable forwards gained 1.2 percent to 11,065. The contracts were 2 percent stronger than the spot rate after trading 2.8 percent weaker on average in the past month.
The Fed needs more evidence of improvement in the world’s largest economy and is concerned a rapid increase in interest rates may curb growth, Chairman Ben S. Bernanke said in Washington yesterday. Economists had expected the U.S. central bank to reduce its monthly purchases of Treasuries by $5 billion, according to the median estimate in a Bloomberg survey. The Jakarta Composite index of shares rose 4.5 percent, the most since October 2011.
“Everything is reacting to the overnight news,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. (MAY) in Singapore. “The spot rate will eventually stabilize and narrow the spread. Sentiment has shifted so it’s now cheaper to hedge against the rupiah.”
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 22 basis points to 18.03 percent, data compiled by Bloomberg show. A fixing used to settle the rupiah forwards was set at 11,218 per dollar yesterday, according to the Association of Banks in Singapore.
Bank Indonesia is “quite happy” with the current rupiah level and doesn’t want it “too strong,” spokesman Peter Jacobs said in interview with Bloomberg TV Indonesia today. The central bank has raised borrowing costs by 1.5 percentage points to 7.25 percent since the middle of June in an attempt to rein in the current-account deficit, which reached a record $9.8 billion in the second quarter.
The Fed’s decision “will remove some pressure on the rupiah,” said Priyo Santoso, chief investment officer at PT Mandiri Manajemen Investasi in Jakarta. “This provides some time for the government to take care of economic conditions and push for structural reform.”
Property and exchange-rate sensitive stocks like retailer PT Mitra Adiperkasa (MAPI) should benefit, Santoso said. Shares of Mitra Adiperkasa rose 5.2 percent, PT Alam Sutera Realty (ASRI) jumped 17 percent while PT Bumi Serpong Damai, a real-estate developer, advanced 16 percent.
The yield on the government’s 5.625 percent bonds due May 2023 dropped one basis point, or 0.01 percentage point, to 8.26 percent, according to prices from the Inter Dealer Market Association.
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