Indonesia’s rupiah fell to a five-year low on concern capital outflows spurred by the planned U.S. stimulus reduction will leave the local currency more vulnerable to the nation’s current-account shortfall.
The currency slid for a third week as data showed global funds lowered holdings of local-currency government debt by 2.95 trillion rupiah ($243 million) from a record 327 trillion rupiah on Dec. 5. The Federal Reserve said last week it will cut its monthly bond purchases, which spurred inflows to emerging markets, from next month. Indonesia’s current account has remained in deficit from the last quarter of 2011 and fueled the rupiah’s 22 percent slide this year, its worst since 2000.
“The external balance remains a concern,” said Fahrudin Haris Prastowo, a Jakarta-based fixed-income dealer at PT Bank Rakyat Indonesia. “Volumes are very low currently, but I expect to see the rupiah supported next year as activity returns.”
The rupiah lost 0.5 percent this week to 12,278 per dollar as of 3:32 p.m. in Jakarta, prices from local banks show. It touched 12,281 earlier, the weakest level since December 2008.
In the offshore market, one-month non-deliverable forwards advanced 0.4 percent to 12,248, trading 0.2 percent stronger than the onshore rate. The contracts gained 0.1 percent today while the spot rate fell 0.6 percent.
The current-account gap was 3.8 percent of gross domestic product last quarter, compared with a record 4.4 percent in the previous period. Bank Indonesia seeks to narrow the gap to below 3 percent of GDP next year, still exceeding the 0.25 percent to 2.5 percent range it deems sustainable.
The nation’s trade balance probably swung back into a deficit of $100 million last month, after a $42 million surplus in October, according to the median estimate by seven economists surveyed by Bloomberg before official data due Jan. 2. Consumer prices rose 8.4 percent in November.
“We remain cautious on rupiah bonds with the high inflation and current-account deficit,” Ng Kheng Siang, head of Asia-Pacific fixed income at State Street Global Advisors, with more than $2.2 trillion of assets, said in a Dec. 20 interview from Singapore. “The start of the Federal Reserve’s tapering would also lead to investor outflows.”
The U.S. central bank said Dec. 18 it will reduce its monthly bond purchases by $10 billion to $75 billion in January.
One-month implied volatility on the rupiah, a measure of expected moves in the exchange rate used to price options, dropped 27 basis points, or 0.27 percentage point, in the week to 14.98 percent. A fixing used to settle the forwards was set at 12,155 per dollar today, from 12,102 on Dec. 20, according to the Association of Banks in Singapore.
The yield on the nation’s 5.625 percent bonds due May 2023 climbed one basis point from Dec. 20 to 8.46 percent, according to the Inter Dealer Market Association.
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