Bank Indonesia Calls for Onshore Rupiah Fixing Amid Probe

Indonesia’s central bank will tell local lenders to create an onshore reference rate to settle rupiah forward transactions domestically as rates set by the Association of Banks in Singapore are investigated.

The fixing will be set by a group of local lenders and can be used as a benchmark to settle foreign-exchange forwards transactions within the country, Bank Indonesia Deputy Governor Halim Alamsyah said in a mobile-phone message today.

It follows a similar move by Bank Negara Malaysia requiring the nation’s lenders to use a ringgit benchmark rate set onshore, a person familiar with the matter said on Jan. 29. The Monetary Authority of Singapore began a probe of the Association of Banks in Singapore in September to ascertain whether there was any manipulation of benchmarks, including daily fixings that are used to settle non-deliverable forwards.

“The central bank’s room to move in responding to the NDF issue is limited,” said Mirza Adityaswara, an economist at the Indonesian Banks Association in Jakarta. “What Bank Indonesia can do is to make sure that dollars are not used for speculative purposes but provided for parties who need it for export and import needs.”

The Indonesian central bank prohibited local lenders from conducting non-deliverable forward transactions domestically in 2005. The Association of Banks in Singapore provides offshore reference rates that are used to settle forward contracts involving the currencies of Singapore, Indonesia, Malaysia, Thailand and Vietnam.

Gain Reversed

The rupiah’s one-month non-deliverable forwards reversed an earlier gain to drop 0.3 percent to 9,708 per dollar as of 2:22 p.m. in Jakarta, data compiled by Bloomberg show. That is 0.2 percent weaker than the spot rate, which declined 0.1 percent to 9,684, according to prices from local banks.

The daily fixing used to settle the derivative contracts was set at 9,684 today by the Association of Banks in Singapore, the strongest level since Dec. 7.

The difference between the onshore spot rate and the offshore fixing widened to as much as 2.6 percent on Jan. 11, before converging for the first time in six weeks on Feb. 1. That’s after the central bank stepped up intervention to narrow the gap and improve investor confidence, Hendar, executive director of monetary policy at Bank Indonesia, said in a Jan. 28 interview in Jakarta.

Traders Suspended

The Monetary Authority of Singapore asked lenders who are members of the rates-setting panel to review the process for non-deliverable currency contracts and to immediately report irregularities as well as to take disciplinary action against any staff involved, it said in a statement in September. Banks including UBS AG and Royal Bank of Scotland Group Plc have suspended some traders in Singapore, where the central bank has expanded its investigation to include more than money-market benchmarks.

NDF contracts, unlike foreign-exchange forwards, are settled in dollars. Who pays and how much is paid at the end of the contract is determined by reference to a fixing, which in some jurisdictions is set by a survey of lenders.

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