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Rupiah Leads Drop in Emerging Currencies on Deficit Concern

Indonesian Rupiah
A clerk stamps bundles of Indonesian rupiah banknotes at a currency exchange office in Jakarta, Indonesia. Photographer: Dimas Ardian/Bloomberg

The rupiah led losses in emerging markets this month amid concern Indonesia’s current-account gap will leave the nation vulnerable to fund outflows when the U.S. cuts stimulus. Government bonds fell the most since 2011.

The deficit was equivalent to 3.8 percent of gross domestic product in the last quarter, from a record 4.4 percent in the previous three months, official data show. Bank Indonesia sees a gap of 0.25 percent to 2.5 percent of GDP as sustainable, Governor Agus Martowardojo said Nov. 22. The government’s first domestic sale of dollar debt raised less than half the targeted amount this week and global funds sold $347 million more local stocks than they bought in November. June’s net sales of $2.03 billion were the biggest since 2005.

“This month’s decline isn’t on the back of large outflows as we saw in June, so it’s mostly due to confidence issues and, more recently, month-end dollar demand,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “As long as the view remains gloomy, investors will be hesitant to come back in.”

The rupiah slid 5.8 percent in November, the most among 24 emerging-market currencies tracked by Bloomberg, to 11,963 per dollar as of 4:24 p.m. in Jakarta, prices from local banks show. It weakened beyond 12,000 for the first time since March 2009 yesterday and gained 0.4 percent today.

In the offshore market, one-month non-deliverable forwards fell 7.6 percent this month to 11,941 per dollar, trading 0.2 percent stronger than the onshore spot rate. The contracts rose 0.2 percent today.

Fed Tapering

U.S. jobless claims unexpectedly fell last week, data showed Nov. 27, after the Federal Reserve said it might reduce purchases “in coming months” should the economy improve. Bank Indonesia attributes the currency’s recent decline to external factors and high demand for dollars toward the end of the month, Martowardojo said this week.

A daily fixing used to settle the rupiah forwards was set at 11,764 per dollar today, from 10,902 on Oct. 31, by the Association of Banks in Singapore. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased 165 basis points, or 1.65 percentage points, this month to 14.42 percent.

The government’s 5.625 percent bonds due May 2023 fell by the most since January 2011, pushing the yield up 118 basis points in November to 8.65 percent, prices from the Inter Dealer Market Association show.

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