Indonesia’s central bank stepped up intervention in the past two weeks to support the rupiah after an offshore fixing for the currency sank to the biggest discount to the onshore spot rate in almost 16 months.
Bank Indonesia acted to boost dollar supply in the market and revive confidence in the rupiah, which lost 0.4 percent this month to extend a six-quarter slide, and narrow the gap between local and overseas prices, said Hendar, executive director for monetary policy. The monetary authority sees room to adjust foreign-exchange rules to temper excess dollar demand and stabilize the rupiah, he said, without elaborating.
“We are increasing the supply of dollars in the currency market to restore market confidence,” Hendar, who goes by only one name, said in a telephone interview from Jakarta yesterday. “This is in line with our effort to not have a dual foreign-exchange market. We are leaning toward seeing a narrower gap between the rupiah’s onshore and offshore levels.”
The difference between rupiah quotes within Indonesia and those outside reached 2.6 percent on Jan. 11, the widest since Sept. 22, 2011. Analysts at HSBC Holdings Plc led by Paul Mackel in Hong Kong wrote in a research note on Jan. 11 that the “two-tiered market” for the rupiah may prompt companies to hoard dollars and Indonesians to prefer holding foreign currencies.
The spread declined to the least in a month after Hendar said it has increased intervention. An average of 18 global lenders’ quotes compiled by The Association of Banks in Singapore and used to settle non-deliverable forwards was fixed at 9,783 per dollar yesterday. That was 0.9 percent cheaper than the onshore rate, the least since Dec. 20.
The rupiah fell 0.2 percent to 9,675 in the spot market in Jakarta yesterday, according to prices from local banks compiled by Bloomberg. It was the worst performer among Asia’s 11 most-traded currencies last year, weakening 5.9 percent, as the nation’s current account remained in deficit for a fourth straight quarter through September. The central bank estimates the shortfall reached 2.4 percent of gross domestic product for the full year, the most since 1996.
“Fulfilling dollar demand has helped stabilize onshore rates, but it remains a short-term measure that doesn’t address the bigger issue of the current-account deficit,” said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore. “We remain negative on the currency.”
The last time the rupiah’s onshore rate exceeded the offshore fixing by more than 2 percent was in May 2012, when analysts at Brown Brothers Harriman & Co. said Bank Indonesia has set an “unofficial ceiling” for the currency and asked local lenders not to quote beyond that level. Bank Indonesia spokesman Difi Johansyah declined on Jan. 14 to comment on the reason for the disparity between the rupiah rates.
Indonesia’s foreign-currency reserves increased for a sixth month to $112.8 billion in December, the biggest stockpile since April. The central bank continues to safeguard the rupiah as it takes steps to respond to “out of proportion” concerns about the current-account deficit, Governor Darmin Nasution told reporters in Jakarta on Jan. 11.
One-month implied volatility for the rupiah, which measures expected moves in exchange rates used to price options, was at 6.25 percent yesterday, the least in almost three weeks.
“The currency’s movement is due to the worsening current account and there will be room for the rupiah to strengthen along with the global recovery,” said Hendar. “We also hope to see domestic measures to improve the current account. In the meanwhile, Bank Indonesia will fill the gap in dollar supply to restore confidence in the market. We hope a more stable exchange rate will build confidence in the capital market.”