Rupiah Completes Biggest Weekly Decline in a Month on Oil Risk

Indonesia’s rupiah completed its biggest weekly decline in a month on concern a surge in global oil prices amid violence in Iraq will worsen the nation’s trade and fiscal deficits.

Brent crude reached a nine-month high of $115.71 per barrel yesterday as militants closed in on Baghdad, capital of the Organization of Petroleum Exporting Countries’ second-largest member. Indonesia, a former OPEC member, is unlikely to become a net oil exporter again, leaving policy makers to grapple with a long-term revenue shortfall as production shrinks, Finance Minister Chatib Basri said in a June 18 interview. Fuel imports made up 23 percent of the country’s overseas purchases in April.

“Geopolitical factors will continue to weigh on the rupiah while corporate demand for dollars remains large toward month-end,” Nurul Eti Nurbaeti, head of treasury research at PT Bank Negara Indonesia, said in Jakarta. “The oil price is causing the market to worry about the trade and budget deficits.”

The currency weakened 1.5 percent this week to close at 11,972 per dollar, the biggest decline since the period ended May 23, prices from local banks show. In the offshore market, one-month non-deliverable rupiah forwards lost 1.6 percent from June 13 to 12,011, 0.3 percent weaker than the onshore rate, data compiled by Bloomberg show. The contracts fell 0.4 percent today, while the spot rate dropped 0.3 percent.

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, increased 35 basis points, or 0.35 percentage point, this week to 9.92 percent. Bank Indonesia set a fixing used to settle the rupiah forwards at 11,967 per dollar today, compared with 11,781 on June 13.

The yield on the government’s 8.375 percent bonds due March 2024 climbed 11 basis points in the past five days to 8.14 percent, the highest level since March 26, according to the Inter Dealer Market Association.

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