Rupiah Rises to Two-Month High as Fixing Seen Curbing Volatility

Indonesia’s rupiah rose to a two-month high on optimism the central bank’s efforts to set an onshore fixing for its derivative contracts will stabilize the currency and bolster demand for local assets.

Bank Indonesia will name lenders chosen to contribute to a benchmark price for settling the rupiah’s forward transactions locally soon, Hendar, executive director for monetary policy, said on Feb. 7. Overseas investors bought $294 million more Indonesian stocks than they sold last week, the biggest inflow since the five days ended Sept. 21, exchange data show.

“The rupiah is back on track toward a fairer level considering its fundamentals,” said Fahrudin Haris Prastowo, a foreign-exchange trader at PT Bank Rakyat Indonesia in Jakarta. “Bank Indonesia’s move to have a domestic fixing based on real supply and demand will help stabilize the rupiah and prompt more capital inflows.”

The rupiah advanced 0.6 percent to 9,613 per dollar as of 3:21 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. It touched 9,603 earlier, the strongest level since Dec. 6. The currency traded at a 0.1 percent premium to its one-month non-deliverable forwards, which advanced 0.3 percent to 9,625.

A daily fixing used to settle the contracts was set at 9,685 on Feb. 8 by the Association of Banks in Singapore, compared with 9,727 the previous day. Markets in Singapore are closed today and tomorrow for a holiday.

One-month implied volatility for the rupiah, which measures expected exchange-rate swings used to price options, was unchanged at 6.5 percent for a sixth day.

Inflation Concern

Bank Negara Malaysia told local lenders to use an onshore reference rate to settle foreign-exchange derivative contracts involving the ringgit, a person familiar with the matter said on Jan. 29. Singapore’s monetary authority is investigating the fixing set by the Association of Banks in Singapore to determine whether there has been any manipulation, it said in a statement in September.

State Street Global Advisors and Schroder Investment Management Ltd. said in interviews with Bloomberg last week they cut holdings of Indonesian sovereign debt on expectations inflation will quicken as the government raises the minimum wage in Jakarta and other cities, while increasing electricity prices.

The yield on Indonesia’s 5.625 percent bonds due May 2023 climbed one basis point, or 0.01 percentage point, to 5.25 percent, prices from the Inter Dealer Market Association show.

Before it's here, it's on the Bloomberg Terminal.