A gauge of expected swings in the rupiah surged the most this week in 16 months amid an emerging-market selloff that prompted Indonesia’s central bank to intervene to prop up the currency.
One-month implied volatility, a measure of expected exchange-rate swings used to price options, climbed 433 basis points, or 4.33 percentage points, since Dec. 12 to 13.26 percent as of 4:26 p.m. in Jakarta, according to data compiled by Bloomberg. That’s the biggest increase since the five-day period ended Aug. 23, 2013. The gauge reached 15.28 percent yesterday, the highest level since January.
The rupiah gained for a fourth day, clawing back most of its 1.9 percent loss on Dec. 15 when it closed at the weakest level since the Asian financial crisis in 1998. Overseas investors pulled 18.15 trillion rupiah ($1.5 billion) from local-currency sovereign bonds this month through Dec. 17, heading for the biggest outflow since June 2013, finance ministry data show. The central bank said it had been intervening this week to safeguard the rupiah and that it had also bought sovereign debt.
“The rupiah is expected to be volatile and a little bit weaker,” said Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia. “In this kind of environment where there is risk aversion, it’s not boding well for currencies like the rupiah. We have seen some stabilization but it will not change the concern over global growth and other issues in the financial markets.”
Falling oil prices that have hurt emerging-market exporters of the commodity, a collapse in Russia’s ruble and the prospect of higher U.S. interest rates next year have combined to prompt a selloff in developing-nation assets. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, rose to the highest level since early 2009 yesterday.
The rupiah strengthened 0.6 percent to 12,490 per dollar, paring its weekly loss to 0.3 percent, according to prices from local banks compiled by Bloomberg. In the offshore market, one-month non-deliverable forwards gained 1.3 percent to 12,570 since Dec. 12. Bank Indonesia set a fixing used to settle the contracts at 12,500, from 12,432 at the end of last week.
Central bank Senior Deputy Governor Mirza Adityaswara said Dec. 17 that the monetary authority would refrain from intervening when the rupiah strengthened beyond 12,300 per dollar. The rupiah will probably trade from 12,000 to 12,500 as investors wait to see when the Federal Reserve will raise interest rates, Finance Minister Bambang Brodjonegoro said in a speech in Jakarta today. The Fed said this week after a two-day meeting that it will be “patient” in its approach to increasing borrowing costs.
Indonesia has a persistent current-account deficit, which makes it vulnerable to outflows when there is volatility in global financial markets, said Commonwealth Bank’s Ji. He revised his end-March forecast for the rupiah to 13,000 per dollar from 12,000. Bank Indonesia predicts a $24 billion shortfall in the broadest measure of trade this year
The yield on the country’s sovereign bonds due March 2024 declined 15 basis points to 8.08 percent this week, according to the Inter Dealer Market Association. The yield, which fell nine basis points today, has increased 38 basis points this month.