Indonesia’s rupiah completed its worst month since the global financial crisis of 2008 on concern the U.S. will start cutting stimulus that has buoyed emerging-market assets as early as September.
The currency pared its losses after Bank Indonesia raised its benchmark interest rate yesterday to a four-year high in an unscheduled move to stem exchange-rate weakness. The reference rate was boosted by 50 basis points to 7 percent, before a Sept. 2 report that economists predict will show faster inflation. Global funds pulled 1.02 trillion rupiah ($91 million) from local sovereign debt this month through Aug. 28 and a net $577 million from stocks through yesterday, official data show.
“Bank Indonesia’s move seeks to preempt August inflation, which may reflect the impact of a weaker rupiah,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “The initial market response has been positive, but the rupiah for the most part has been driven by sentiment and broad dollar strength, so the impact may not be immediate.”
The rupiah slumped 5.9 percent in August, the biggest drop since November 2008, to 10,920 per dollar as of 4:15 p.m. in Jakarta, prices from local banks show. It advanced 0.1 percent today following the interest-rate increase and traded at a 3.9 percent premium to the one-month non-deliverable forwards, which fell 8.1 percent in August and gained 1 percent today to 11,363, data compiled by Bloomberg show.
A fixing used to settle the derivatives set by the Association of Banks in Singapore was 11,275 today, from 10,299 on July 31. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 5.85 percentage points this month to 18.39 percent, data compiled by Bloomberg show.
The Federal Reserve will begin to slow its debt purchases at a Sept. 17-18 meeting, according to 65 percent of economists in a Bloomberg survey conducted this month.
The inflation report will show consumer prices gained 8.94 percent in August from a year earlier, compared with 8.6 percent in July, according to the median estimate of 19 analysts in a Bloomberg survey.
Benchmark government bonds due May 2023 fell for a fourth month, pushing the yield up by 65 basis points, or 0.65 percentage point, to 8.48 percent, prices from the Inter Dealer Market Association show. The yield dropped 24 basis points today, most since July 31.