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Rupiah Falls Most in 13 Months as Controls Ease; Bonds Surge

A money changer poses with Indonesian rupiah banknotes, in Jakarta. Photographer: Dimas Ardian/Bloomberg
A money changer poses with Indonesian rupiah banknotes, in Jakarta. Photographer: Dimas Ardian/Bloomberg

Indonesia’s rupiah plunged the most in 13 months in onshore trading as Bank Indonesia allows a more rapid slide toward levels quoted in the offshore market. The yield on 10-year government bonds fell the most since 2011.

The rupiah dropped 1.3 percent to 10,200 per dollar as of 4:15 p.m. in Jakarta, according to prices from local banks. The currency reached 10,258 earlier, the weakest level since July 14, 2009. One-month non-deliverable forwards were 1.7 percent weaker than the spot rate at 10,379. That gap exceeded 5 percent last month for the first time since 2011.

“Bank Indonesia has stepped back to allow real supply and demand in the market to play out,” said Suriyanto Chang, head of treasury at PT Bank QNB Kesawan in Jakarta. “The rupiah could strengthen from now, as exporters sell dollars and investors start to look at picking up the nation’s debt.”

The central bank has allowed the rupiah to gradually depreciate, especially this month, Deputy Governor Perry Warjiyo said July 12. The nation recorded trade deficits in seven out of the past eight months, while its current account has been in shortfall for the six quarters through March, official data show.

The rupiah has weakened 2.7 percent in July and 5.5 percent this year, the worst performance among Asia’s 11 most-traded currencies after Japan’s yen and India’s rupee. The 10,000 per dollar level is in line with economic fundamentals, Bank Indonesia Governor Agus Martowardojo said last week.

Bonds Surge

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, fell 66 basis points, or 0.66 percentage point, to 12.67 percent, data compiled by Bloomberg show. A fixing by the Association of Banks in Singapore that is used to settle the rupiah contracts was set at 10,204 today, stronger than Bank Indonesia’s spot reference rate at 10,222.

“Investors remain unconvinced of the rupiah outlook and the nation’s current-account-deficit fundamentals, and are trying to get out while they have the chance,” said Greg Gibbs, foreign-exchange strategist at Royal Bank of Scotland Group Plc in Singapore.

The yield on the 5.625 percent bonds due May 2023 fell 41 basis points to 7.44 percent, the lowest level since July 5, prices from the Inter Dealer Market Association show. The yield has plunged 86 basis points, or 0.86 percentage point, in five days from a 28-month high of 8.3 percent on July 16.

A weaker rupiah minimizes the risk for foreign investors to buy Indonesian bonds and stocks as the currency gets closer to what might be the new equilibrium, Alvin Pattisahusiwa, chief investment officer at PT Manulife Asset Management in Jakarta, said today, adding that he expects the currency to weaken to 10,500 per dollar.

Chris Siniakov, the head of Asia fixed income at Deutsche Asset & Wealth Management in Melbourne, and Ezra Nazula, head of fixed income at Manulife Asset in Jakarta, said in interviews yesterday that a 10-year yield of around 8 percent offered good value for investors.

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