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Rupiah Drops for Record 11th Day on Central Bank Action

Rupiah Drops for Record 11th Day as Central Bank Manages Decline
The rupiah declined 0.1 percent to 10,069 per dollar as of 9:19 a.m. in Jakarta, the weakest level since September 2009, according to prices from local banks compiled by Bloomberg. Photographer: Dimas Ardian/Bloomberg

Indonesia’s rupiah fell for a record 11th day as the central bank manages a gradual depreciation of the onshore exchange rate toward offshore levels. Government bonds advanced.

The currency dropped by the most in two months today after weakened beyond 10,000 per dollar for the first time since 2009 on July 15. Bank Indonesia Deputy Governor Perry Warjiyo said July 11 the monetary authority has supplied dollars to the market in the past two to three months while allowing the rupiah to slowly retreat. Foreign-exchange reserves dropped $7.1 billion in June, the most since September 2011, to total less than $100 billion for the first time in more than two years.

“We expect pressure on the spot rate to continue,” said Thio Chin Loo, senior currency analyst at BNP Paribas SA in Singapore. “Bank Indonesia is releasing its hold because draining the reserves is uncomfortable for them, so this allows pent-up dollar demand to go through.”

The rupiah declined 0.4 percent to 10,103 per dollar as of 1:15 p.m. in Jakarta, the biggest drop since May 16, prices from local banks show. The currency touched 10,126 earlier, the weakest level since Sept. 7, 2009. The spot rate is still 3.2 percent stronger than one-month non-deliverable forwards, which traded at 10,438. A fixing by the Association of Banks in Singapore that is used to settle the contracts was set at 10,170.

The onshore spot rate fell 1.1 percent this week, compared with a 2.6 percent slide in the forwards. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 53 basis points, or 0.53 percentage point, today to 13.36 percent, data compiled by Bloomberg show.

Currency Swap

The rupiah’s potential for the widest swings among Asia’s most-traded currencies is deterring State Street Global Advisors and Pioneer Investments from the nation’s bonds.

Bank Indonesia received $1.24 billion of bids at its first foreign-exchange swap auction yesterday, compared with the $500 million target and $600 million granted, it said in a statement on its website.

“The large demand is a reflection of the underlying shortage of dollars,” Thio of BNP Paribas said.

The yield on the government’s 5.625 percent bonds due May 2023 fell 10 basis points to 7.93 percent today, prices from the Inter Dealer Market Association show. It dropped 23 basis points this week.

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