Rupiah Forwards Surge as Offshore Fixing Matches Onshore Spot

Indonesia’s rupiah forwards jumped the most since September after global banks strengthened their quotes for the currency, causing an offshore fixing to converge with the onshore spot rate for the first time in six weeks.

One-month contracts climbed 1.2 percent to 9,688 per dollar as of 4:52 p.m. in Jakarta after the fixing, an average of 18 global lenders’ quotes in Singapore that is used to settle non-deliverable forwards, strengthened 0.3 percent to 9,769. The currency fell as low as 9,778, before closing 0.3 percent higher on the day at 9,713, according to prices from banks in Indonesia compiled by Bloomberg.

The rate published by the Association of Banks in Singapore was 2.6 percent weaker than quotes within Indonesia on Jan. 11, the biggest discount since September 2011. Analysts at HSBC Holdings Plc led by Paul Mackel wrote in a report the same day that the rupiah’s “two-tiered market” may prompt companies and Indonesians to hoard dollars, worsening an onshore shortage of U.S. currency.

“Sentiment has improved quite a bit and dollar liquidity is flush,” Andy Ji, a foreign-exchange strategist at Commonwealth Bank of Australia, said in an interview from Singapore. “The key issue now is whether the central bank will loosen its control and make the market more of a marketplace.”

Bank Indonesia has increased dollar supply in the domestic market since the second week of January to support the rupiah and reduce the difference between local and overseas rates, Hendar, executive director for monetary policy, said in a Jan. 28 interview.

Liqudity Normalized

Local rupiah prices last exceeded the overseas fixing by more than 2 percent in May, when analysts at Brown Brothers Harriman & Co. said the central bank had set an “unofficial ceiling” for the currency and asked local banks not to quote beyond that level.

“Dollar-rupiah liquidity has normalized, which has helped close the gap between onshore and offshore rates,” said Branko Windoe, the head of treasury at PT Bank Central Asia, the nation’s largest lender by market value, said in an interview from Jakarta. “This more efficient market will see overall demand for Indonesian assets pick up.”

One-month implied volatility in the currency, which measures expected moves in exchange rates used to price options, was unchanged for a seventh day at 6.25 percent.

Bank Indonesia is in talks with central banks in Singapore and Malaysia as it monitors the effect of non-deliverable forward transactions on the local market, amid an ongoing probe into fixings set by the Association of Banks in Singapore, Deputy Governor Halim Alamsyah told reporters in Jakarta today. The Monetary Authority of Singapore said in a Dec. 20 statement that it’s reviewing benchmarks set by the association.

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