Rupiah Declines by Most in Three Weeks on Wider Trade Deficit

Indonesia’s rupiah dropped by the most in three weeks and government bonds fell as official data today showed exports contracted and the trade deficit widened more than economists forecast.

The nation recorded a trade shortfall of $1.3 billion in June, compared with the median estimate of analysts surveyed by Bloomberg for a $530 million deficit. Overseas sales slid 16.4 percent from a year earlier, the most since September 2009. Inflation accelerated to 4.56 percent in July, the fastest pace in 10 months, according to another report released today.

“We are bearish on the rupiah now,” said Mika Martumpal, a currency analyst at PT Bank CIMB Niaga in Jakarta. “The trade deficit will challenge our current-account balance, while our capital account remains fragile as Europe continues to be a concern.”

The rupiah fell 0.3 percent to 9,466 per dollar as of 3:36 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. That was the biggest drop since July 12. Martumpal said he revised his quarter-end forecast for the rupiah to 9,600 from 9,400 after the trade data. One-month implied volatility, which measures exchange-rate swings used to price options, was steady at 7.5 percent.

The yield on the 7 percent bonds due May 2022 rose one basis point, or 0.01 percentage point, to 5.72 percent, prices from the Inter Dealer Market Association show. ING Financial Markets predicts the yield will drop to 5 percent by year-end as the central bank lowers borrowing costs. Inflation has averaged 4.2 percent this year, down from 5.4 percent in 2011, official data show.

“Well-behaved inflation and weak global growth put a policy interest-rate cut back on the table,” Tim Condon, chief Asia economist at ING in Singapore, wrote in a report today. He forecast Bank Indonesia will cut its reference rate by 25 basis points to 5.5 percent before the end of September.

The central bank left its reference rate unchanged at a record-low 5.75 percent for a fifth month in July, a decision predicted by all 20 economists in a Bloomberg survey.

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