Rupiah Forwards Have Weekly Drop on Current-Account Concern

Indonesia’s three-month rupiah forwards dropped this week, halting a four-week advance, on concern the shortfall in the current account will worsen. Bonds declined in the past five days.

The deficit in the broadest measure of trade increased to $7.8 billion last quarter, compared with the $7.4 billion median estimate in a Bloomberg News survey and $5.3 billion in the preceding three months, the central bank reported on Feb 13. International reserves fell $4 billion last month to $109 billion, the most since June, suggesting Bank Indonesia has been intervening to curb depreciation in the rupiah, which lost 6.4 percent in the past year.

“If the foreign-currency reserves fall further, renewed worries on the rupiah could surface,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “The issue is, the underlying fundamental problem hasn’t been addressed in a meaningful way in terms of the current-account deficit.”

Three-month non-deliverable forwards declined 0.2 percent to 9,726 per dollar this week as of 3:06 p.m. in Jakarta, data compiled by Bloomberg show. The contracts were little changed today and traded at a 0.6 percent discount to the spot rate, which weakened 0.1 percent to 9,672, according to prices from local banks compiled by Bloomberg. The spot rate slipped 0.1 percent in the past five days.

Fuel Subsidies

A daily fixing used to settle the derivative contracts was set at 9,681 per dollar today by the Association of Banks in Singapore. That’s 0.2 percent lower than 9,666 yesterday and little changed from 9,685 at the end of last week.

The rupiah’s one-month implied volatility, a measure of expected moves in the exchange rate used to price options, was unchanged this week and today at 6.5 percent.

Bank Indonesia will boost dollar supply to help increase confidence in the capital market, Hendar, executive director for monetary policy at the central bank, said on Jan. 28.

Imports of oil, which are sold to the local market at subsidized prices, contributed to the deepening of the current-account deficit last quarter, the worst on record since Bloomberg began compiling the data in 1989.

Authorities should address the fuel subsidy and raise interest rates to help curb domestic demand and reduce the current-account gap, Bank of Singapore’s Sim said.

Bonds Fall

The rupiah will weaken to 9,900 per dollar by year-end, Barclays Plc analysts led by Prakriti Sofat wrote in a report dated Feb. 14. That would be the weakest level since September 2009, according to data compiled by Bloomberg.

The U.K. bank also recommended investors go “underweight” Indonesian government bonds, meaning holding less than a benchmark index used to track performance, because of currency concerns and a potential increase in interest rates.

The yield on Indonesia’s 5.625 percent notes due May 2023 climbed two basis points, or 0.02 percentage point, to 5.26 percent this week, prices from the Inter Dealer Market Association show. The rate was little changed today.

The monetary authority maintained benchmark borrowing costs at a record low of 5.75 percent on Feb. 12, as forecast by all 17 analysts surveyed by Bloomberg.

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