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Rupiah Forwards Strengthen Most in a Year on Fasbi Rate Increase

Indonesia’s rupiah forwards rose the most in a year after the central bank increased the rate it pays lenders on overnight deposits in a preemptive step to maintain monetary stability. Government bonds gained.

One-month non-deliverable forwards advanced 1.6 percent, the most since June 2012, to 10,120 per dollar as of 3:52 p.m. in Jakarta, data compiled by Bloomberg show. The contracts touched 10,412 yesterday, the weakest level since August 2009. In the spot market, the rupiah fell 0.3 percent to 9,860, taking its decline this week to 0.6 percent.

Bank Indonesia raised the deposit facility rate, known as the Fasbi, by a quarter-percentage point to 4.25 percent effective today, the central bank said in a statement on its website. Global funds have pulled $1 billion from local stocks this month, exchange data show. Indonesia has recorded six consecutive quarterly current-account shortfalls.

“The external-stability risk has been mounting given the sizable current-account deficit,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore. “This is the start of monetary tightening,” which will be positive for the rupiah, he said.

The central bank will leave its key reference rate at a record-low 5.75 percent tomorrow, according to all 19 economists surveyed by Bloomberg News. An increase in the benchmark rate is now more of a possibility after the Fasbi rate move, Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc., said in an interview today.

Rupiah Volatility

Indonesian policy makers have struggled to contain the rupiah’s plunge as a delay in fuel-subsidy cuts hurts investor sentiment, with the country’s currency reserves dropping as the central bank sold dollars. The Fasbi increase was aimed at addressing high volatility in the rupiah in the past week, Koon How Heng, a strategist at Credit Suisse Group AG in Singapore, said in an interview today.

One-month implied volatility in the rupiah, which measures expected moves in the exchange rate used to price options, decreased 33 basis points, or 0.33 percentage point, to 13.60 percent. It touched 14.5 percent yesterday, the highest level in a year.

The rupiah’s weakness is temporary, Finance Minister Chatib Basri told reporters today. Bank Indonesia is ready to supply a “large quantity” of dollars to stabilize the local currency, as well as buy government bonds in the secondary market sold by overseas investors, Deputy Governor Perry Warjiyo said in a text message today.

“Near-term prospects of the rupiah will still be primarily driven by investor flows,” said Credit Suisse’s Koon.

The yield on the government’s 5.625 percent bonds due May 2023 dropped 11 basis points to 6.57 percent, prices from the Inter Dealer Market Association show. The yield touched 6.68 percent yesterday, the highest since 2011.

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