Rupiah Set for Fourth Weekly Loss, Bonds Drop on Fed Taper Bets

Indonesia’s rupiah headed for a fourth weekly decline and government bonds were poised for the longest losing streak since July on concern the Federal Reserve will bring forward a plan to cut its record stimulus.

The currency dropped to the weakest level since March 2009 yesterday as global funds pulled $366 million from Indonesian stocks in November, exchange data show. The Fed may start reducing the pace of its $85 billion of monthly bond purchases in the “coming months” as the world’s largest economy improves, according to minutes of its October meeting released this week. Indonesia’s trade balance has been in deficit every month bar two this year through September.

“Signals of sooner-than-expected Fed tapering are causing riskier assets like the rupiah to weaken,” said Rully Nova, a currency analyst at PT Bank Himpunan Saudara 1906 in Jakarta. “Fundamentally, Indonesia is especially vulnerable to outflows because of its weak external balances.”

The rupiah dropped 0.8 percent this week to 11,713 per dollar as of 10:09 a.m. in Jakarta, prices from local banks show. It was little changed today and reached 11,733 yesterday, the weakest level since March 31, 2009. In the offshore market, one-month non-deliverable forwards slumped 1.3 percent this week and 0.1 percent today to 11,620, 0.8 percent stronger than the onshore spot rate.

A fixing used to settle the forwards was set at 11,513 per dollar yesterday, compared with 11,386 on Nov. 15, according to the Association of Banks in Singapore. One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, gained one basis point this week to 14.36 percent.

The nation’s 5.625 percent bonds due May 2023 fell for a fourth week, the longest run of losses since July. The yield climbed 20 basis points to 8.61 percent, the highest level since Sept. 11, prices from the Inter Dealer Market Association show. The yield climbed one basis point, or 0.01 percentage point, 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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