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Rupiah Snaps Two-Day Drop as Fed May Add Stimulus; Bonds Advance

Indonesia’s rupiah snapped a two-day loss and bonds advanced, pushing 10-year yields to a one-month low, on speculation the Federal Reserve will announce stimulus measures that may spur demand for emerging-market assets.

The Fed will take steps to boost the U.S. economy after finishing a two-day meeting today, according to 12 of the 21 primary dealers who trade with the central bank. Jobless claims in the world’s largest economy unexpectedly rose in the week ended June 9 and May consumer prices fell by the most in three years, according to official data. Foreign funds have pulled 500 billion rupiah ($53 million) from Indonesian government bonds this month through June 18, finance ministry data show.

“Looking at the weak economic data from the U.S., most likely we will see the Fed opening up to the option of adding stimulus,” said Rully Nova, a currency analyst at PT Bank Himpunan Saudara 1906 in Jakarta. “That would be positive for emerging-market currencies.”

The rupiah strengthened 0.5 percent to 9,423 per dollar as of 4:10 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. One-month implied volatility, which measures exchange-rate swings used to price options, dropped 50 basis points, or 0.50 percentage point, to 11.50 percent.

“The central bank has added more incremental measures to reduce volatility in the rupiah and more are in the offing,” analysts at DBS Group Holdings Ltd. led by David Carbon in Singapore wrote in a report today, referring to regulations introduced in March and dollar term deposits offered this month. “More steps could be taken in this direction in the coming months.”

The yield on the government’s 7 percent bonds due May 2022 fell four basis points to 6.34 percent, the lowest level since May 14, according to the Inter Dealer Market Association.

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