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Indonesian Rupiah Touches Four-Year Low on Fed Tapering Concern

Aug. 21 (Bloomberg) -- Indonesia’s rupiah touched a four-year low on concern the U.S. is preparing to cut stimulus that helped boost demand for emerging-market assets. Bonds gained.

The currency pared losses after the nation said it plans to sell global Islamic bonds as soon as next week. The yield on 10-year local debt reached the highest since March 2011 before the Federal Reserve publishes today minutes of its July meeting that may show whether it plans to reduce its asset purchases as early as September. Bank Indonesia will remain in the financial market to stabilize the rupiah, which is under pressure due to the country’s current-account deficit and the prospect of Fed stimulus cut, Deputy Governor Perry Warjiyo said yesterday.

“Most of the domestic negative stories have been priced in, but the impact of FOMC minutes is still a concern,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas, unit of nation’s largest bank. “The central bank is allowing rupiah weakness to reduce imports and improve the current account.”

The rupiah declined 0.8 percent to 10,775 per dollar as of 4:43 p.m. in Jakarta, prices from local banks show. The currency fell as much as 1.2 percent to 10,818 earlier, the weakest level since April 2009. It traded at a 4 percent premium to the one-month non-deliverable forwards, which fell 1.5 percent to 11,228 per dollar, data compiled by Bloomberg show. The contracts reached a four-year low of 11,355 earlier.

Sukuk Sale

The government may sell dollar-denominated sukuk “close to last year’s size” of $1 billion as soon as next week after holding investor meetings in Europe and the Middle East starting Aug. 23, Dahlan Siamat, Islamic financing director at the finance ministry’s debt management office, said in Jakarta today. Foreign-exchange reserves declined 18 percent this year to $92.7 billion, the least since October 2010, as the central bank intervened to support the currency.

“The sale will bring in much-needed dollar liquidity and add to reserves, which are positive for the rupiah,” said Mika Martumpal, head of treasury research and strategy at PT Bank CIMB Niaga in Jakarta. “The pricing will be tough but the government must do it to meet its funding target.”

A fixing by the Association of Banks in Singapore used to settle the derivative contracts was set at 10,902 today, the lowest since April 2009. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 2.95 percentage points to 18.03 percent, according to data compiled by Bloomberg.

The yield on the nation’s bonds due May 2023 dropped for the first time in nine days, declining two basis points, or 0.02 percentage point, to 8.47 percent, prices from the Inter Dealer Market Association show. It reached 8.54 earlier, the highest level since March 2011.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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