Rupiah Forwards Decline as Central Bank Calls for Onshore Fixing

Indonesia’s rupiah forwards fell, halting a six-day advance, after the central bank said it will ask local lenders to create an onshore reference rate to settle forward transactions domestically.

Bank Indonesia has proposed a new fixing as benchmarks set by the Association of Banks in Singapore are being investigated by the Monetary Authority of Singapore to ascertain whether there was any manipulation of rates. It follows a similar move by Bank Negara Malaysia, which required the nation’s lenders to use a ringgit rate set onshore, according to a person familiar with the matter.

“Most people still have a bearish outlook on the rupiah as Bank Indonesia is still very much in control,” said Andy Ji, a foreign-exchange strategist at Commonwealth Bank of Australia in Singapore. “The probe is still a very sensitive issue at this point. The move will probably affect liquidity in the forwards market.”

One-month non-deliverable forwards slid 0.4 percent to 9,718 per dollar as of 3:50 p.m. in Jakarta, data compiled by Bloomberg show. They reached a three-year low of 9,985 on Jan. 10 and Jan. 11. The contracts traded at a 0.1 percent discount to the spot rate, which weakened 0.3 percent to 9,705, according to prices from local banks compiled by Bloomberg.

A daily fixing used to settle the derivatives was set higher at 9,684 today by the Association of Banks in Singapore, compared with 9,695 yesterday.

Forward Transactions

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

The rupiah’s one-month implied volatility, which measures expected exchange-rate swings used to price options, was little changed at 6.5 percent for a third day.

The yield on Indonesia’s 5.625 percent bonds due May 2023 slipped one basis point, or 0.01 percentage point, to 5.26 percent, prices from the Inter Dealer Market Association show.

The government raised 1.5 trillion rupiah ($155 million) yesterday from its first Islamic debt sale in 2013, with investor bids exceeding the amount offered by 2.8 times, the debt management office said in a statement on its website.

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