Indonesia’s rupiah surged the most in 15 months, stocks jumped and government bonds gained after the Federal Reserve unexpectedly refrained from reducing stimulus that has spurred inflows to emerging markets.
The currency rose 1.7 percent to 11,283 per dollar as of 4:08 p.m. in Jakarta, the biggest advance since May 30, 2012, prices from local banks show. In the offshore market, the one-month non-deliverable forwards gained 2.8 percent to 10,870, the most since December 2008. The contracts were 3.5 percent stronger than the spot rate after trading 2.7 percent weaker on average in the past month.
The Fed needs more evidence of improvement in the world’s largest economy and is concerned a rapid increase in interest rates may curb growth, Chairman Ben S. Bernanke said in Washington yesterday. Economists had expected the U.S. central bank to reduce its monthly purchases of Treasuries by $5 billion, according to the median estimate in a Bloomberg survey. The yield on 10-year government bonds fell to the lowest in a month while the Jakarta Composite index of shares rose 4.7 percent, most since September 2011.
“Everything is reacting to the overnight news,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The spot rate will eventually stabilize and narrow the spread. Sentiment has shifted so it’s now cheaper to hedge against the rupiah.”
One-month implied volatility, a measure of expected moves in the exchange rate used to price options, slid 131 basis points to 16.5 percent, lowest since Aug. 20, data compiled by Bloomberg show. A fixing used to settle the rupiah forwards was set at 10,875 per dollar, 3.1 percent stronger than yesterday, according to the Association of Banks in Singapore.
Bank Indonesia is “quite happy” with the level of the rupiah and doesn’t want it “too strong,” spokesman Peter Jacobs said in an interview with Bloomberg TV Indonesia today, referring to the level yesterday when it closed at 11,475 per dollar. The central bank has raised borrowing costs by 1.5 percentage points to 7.25 percent since the middle of June in an attempt to rein in the current-account deficit, which reached a record $9.8 billion in the second quarter.
The Fed’s decision “will remove some pressure on the rupiah,” said Priyo Santoso, chief investment officer at PT Mandiri Manajemen Investasi in Jakarta. “This provides some time for the government to take care of economic conditions and push for structural reform.”
Property and exchange-rate sensitive stocks like retailer PT Mitra Adiperkasa should benefit, Santoso said. Shares of Mitra Adiperkasa rose 11.2 percent, PT Alam Sutera Realty jumped 17.2 percent while PT Bumi Serpong Damai, a real-estate developer, advanced 16.1 percent.
The yield on the government’s 5.625 percent bonds due May 2023 dropped 33 basis points, or 0.33 percentage point, to 7.94 percent, lowest level since Aug. 14, according to prices from the Inter Dealer Market Association.