Rupiah Volatility Rises to Four-Month High Before Election

A measure of expected fluctuations in the Indonesian rupiah reached a four-month high as the race for the presidency tightened before next week’s election.

The July 9 vote is “too close to call” as Joko Widodo’s lead over Prabowo Subianto narrowed to four percentage points from 18 points in May, survey company Roy Morgan said in a poll released June 30, which had a margin of error of 1.8 percentage points. The trade balance swung to a $70 million surplus in May, from a $1.96 billion deficit in April, official data showed July 1. That compares with the $100 million shortfall estimated by 21 analysts surveyed by Bloomberg.

One-month implied volatility, a measure of expected swings in the rupiah used to price options, rose 39 basis points, or 0.39 percentage point, this week to 11.65 percent, data compiled by Bloomberg show. The gauge reached 12.02 percent earlier, the highest level since Feb. 12, and rose six basis points today.

“Rising volatility is a function of uncertainty ahead of the election,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “We could see some strengthening immediately post-election as it would resolve much of the uncertainty. The trade data was mostly supportive.”

The rupiah gained 1 percent from June 27, the most in Asia, and 0.4 percent today to 11,873 per dollar, prices from local banks show. The weekly advance is the biggest since the five days ended May 16.

In the offshore market, one-month non-deliverable forwards climbed 1.3 percent this week and 0.7 percent today to 11,912 per dollar, trading 0.3 percent weaker than the onshore rate, data compiled by Bloomberg show.

Bond Sale

Bank Indonesia set a fixing used to settle the contracts at 11,887 per dollar, compared with 12,103 on June 27.

The country’s debut euro bonds attracted bids for almost seven times the 1 billion euros ($1.4 billion) raised, the finance ministry said in a statement yesterday.

The offer “was as much of a politically-inspired sale as it was a financially driven one,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said by e-mail yesterday. “This is an attempt on the part of the government to showcase Indonesia’s strong creditworthiness amid significant uncertainty about the outcome of next week’s election.”

The yield on the nation’s 8.375 percent local-currency bonds due March 2024 dropped 14 basis points this week to 8.14 percent, the most since the five days ended May 16, and was little changed today, according to the Inter Dealer Market Association.

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