Rupiah Weakens to 2009 Low on Speculation Fed to Reduce Stimulus

Indonesia’s rupiah fell to the weakest level since September 2009 on speculation an improving U.S. economy increases the chance the Federal Reserve will scale back stimulus that’s spurred inflows to emerging markets.

The Dollar Index rose for a second day after data yesterday showed U.S. consumer confidence is at a five-year high, while the yield on 10-year Treasuries climbed 48 basis points this month. Fed Chairman Ben S. Bernanke said last week that its $85 billion a month of bond buying may be cut if the U.S. economy shows signs of sustained improvement. Indonesian companies usually pay dividends toward the end of the second quarter.

“What we’re experiencing now is a round of dollar buying that’s prompted by the rise in U.S. yields, as there’s been expectations for when the Fed could withdraw liquidity from the marketplace,” said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore. The repatriation of equity dividends could also be a factor, she said.

The rupiah weakened 0.9 percent to 9,885 per dollar as of 9:33 a.m. in Jakarta, prices from local banks compiled by Bloomberg show. It touched 9,890, the weakest level since Sept. 15, 2009. The spot rate traded at a 0.8 percent premium to the one-month non-deliverable forwards, which declined 0.4 percent to 9,963 per dollar, data compiled by Bloomberg show.

Overseas investors sold $148 million more Indonesian shares than they bought in the first two days of the week, exchange data show. The rupiah has weakened 1.6 percent against the greenback this month, poised for the biggest decline in a year.

Bonds Fall

Bank Indonesia is committed to maintaining the currency’s stability in line with economic fundamentals, Deputy Governor Perry Warjiyo said on May 22.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, dropped 14 basis points, or 0.14 percentage point, to 7.23 percent.

The yield on the government’s benchmark 10-year bonds rose five basis points to 5.91 percent. The yield has advanced 41 basis points this month, the most since August.

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