Indonesia’s rupiah forwards reached the strongest level in almost two months after the country’s trade deficit narrowed.
December’s shortfall was $155 million, according to a report released Feb. 1. That compared to a revised $618 million gap in November and $1.9 billion in October. Overseas investors bought $179 million more local stocks than they sold last week and added 2.32 trillion rupiah ($240 million) to their local-currency sovereign debt holdings in the four days through Jan. 31, exchange and finance ministry data show.
“The trade deficit looks to be on a narrowing trend,” said Mika Martumpal, a currency analyst at PT Bank CIMB Niaga in Jakarta. “When the trade gap closes, considering the strong capital inflows to Indonesia, there would be no other way for the rupiah to go but up.”
One-month non-deliverable forwards rose 0.2 percent to 9,670 per dollar as of 3:49 p.m. in Jakarta, data compiled by Bloomberg show. They reached 9,660 earlier, the highest level since Dec. 6. The contracts were very close to the spot rate, which advanced 0.5 percent to 9,667, according to prices from local banks.
A daily fixing used to settle the derivative contracts was set at 9,679 today by the Association of Banks in Singapore.
The spot rate was stronger than the offshore fixing for the first time in six weeks on Feb. 1. The central bank has been increasing the supply of dollars in the domestic market to reduce the disparity since the second week of January, Hendar, executive director for monetary policy at Bank Indonesia, said in a Jan. 28 interview. Like many Indonesians, he goes by only one name.
“With the narrowing difference between the rupiah’s onshore and offshore levels, participants in the currency market will be confident of sufficient dollar supply,” Bank Indonesia spokesman Difi Johansyah said in a mobile-phone message today.
One-month implied volatility for the rupiah, which measures expected moves in exchange rates used to price options, was steady at 6.5 percent.
Consumer-price gains accelerated to 4.6 percent last month from 4.3 percent in December, the government reported on Feb. 1. The yield on the 5.625 percent bonds due May 2023 was little changed at 5.26 percent, according to prices from the Inter Dealer Market Association.