Bank Indonesia set its first fixing for the rupiah 0.2 percent stronger than an equivalent rate in Singapore, where the central bank has started a probe to ascertain whether onshore rates were manipulated.
Indonesia’s monetary authority will require local lenders to use its Jakarta Interbank Spot Dollar Rate, which it fixed at 9,760 per dollar today, to settle currency derivatives, Difi Johansyah, the executive director for communications, told reporters in Jakarta today. That compared with the 9,778 set by the Association of Banks in Singapore, which is used to settle non-deliverable forwards in the rupiah.
Bank Indonesia is following the example of Bank Negara Malaysia, which now requires lenders under its oversight to use an onshore benchmark for similar ringgit transactions, a person familiar with the matter said in January. The Monetary Authority of Singapore began an investigation into fixings implemented by its association of banks in September after global regulators identified irregularities in settings for the London interbank offered rate, allegedly to inflate lenders’ profits.
“The potential for manipulation in Jisdor is much smaller as it’s taken from actual transactions and not self-inputted, which may be influenced by the banks’ interests,” Raditya Ariwibowo, a treasury research analyst at state-owned PT Bank Negara Indonesia, said in an interview from Jakarta today. “This may also reduce the rupiah’s volatility as traders can now look at this onshore fixing rather than the offshore NDF market for direction.”
The rupiah, Asia’s worst-performing currency excluding the yen in the last 12 months, was little changed at 9,758 per dollar as of 3:58 p.m. in Jakarta, compared with 9,757 on May 17, according to prices from local banks compiled by Bloomberg. It traded 0.4 percent stronger than one-month non-deliverable forwards, which advanced 0.4 percent to 9,800, data compiled by Bloomberg show.
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 23 basis points, or 0.23 percentage point, to 6.83 percent. The gauge reached 7.21 percent on May 17, the highest since September.
The central bank collects realized transactions between banks up to 9:45 a.m. before releasing the reference rate at 10 a.m. in Jakarta, it said in a statement posted on its website today. The fixing will help develop the onshore currency derivatives market as it provides a reliable reference to be used to settle the contracts, Johansyah said.
“Hedging products are very dependent on the reference used to settle them and Jisdor will hopefully contribute to increased hedging transactions due to improved price transparency,” Johansyah said. “Bank Indonesia has no authority to require overseas traders to use the fixing, and we don’t allow non-deliverable forwards onshore.”
The monetary authority prohibited local lenders from conducting non-deliverable forward transactions domestically in 2005. The Association of Banks in Singapore provides offshore reference rates that are used to settle forward contracts involving the currencies of Singapore, Indonesia, Malaysia, Thailand and Vietnam.
NDF contracts, unlike foreign-exchange forwards, are settled in dollars. Who pays and how much is paid at the end of the contract is determined by reference to a fixing, which in some jurisdictions is set by a survey of lenders.