Rupiah Forwards Gain Most in Four Months on Rate-Increase Bets

Indonesia’s rupiah forwards advanced by the most in four months on speculation the central bank will raise interest rates next week. Government bonds were steady.

Bank Indonesia has room to increase borrowing costs, and raising the benchmark rate is the most credible way to respond to inflation expectations, Deputy Governor Halim Alamsyah said in an interview in Singapore yesterday before the next policy meeting on June 13. Consumer-price gains may quicken to 7.7 percent, from 5.47 percent in May, if the government lifts subsidized fuel prices, he said.

“It will be very good if they raise rates at the next meeting,” said Suriyanto Chang, the head of treasury at PT Bank QNB Kesawan in Jakarta. “It’s really just a matter of time, and that will see the rupiah strengthen further.”

One-month non-deliverable forwards gained 0.7 percent, the most since Feb. 1, to 9,952 per dollar as of 3:18 p.m. in Jakarta, data compiled by Bloomberg show. The contracts traded at a 1.5 percent discount to the spot rate, which was steady at 9,803, according to prices from local banks compiled by Bloomberg.

The Dollar Index, which tracks the greenback against six major counterparts, dropped by the most in almost five months yesterday after the Institute for Supply Management’s U.S. factory index fell to a June 2009 low. That eased speculation the Federal Reserve will scale back its monetary stimulus that has fueled fund flows to emerging markets.

Stock Sell-Off

“The dollar declined against all emerging currencies, which also helped the rupiah,” Bank QNB Kesawan’s Chang said.

Global funds sold $171 million more local stocks than they bought yesterday, the most since August 2011, exchange data show. The finance ministry sold 3.1 trillion rupiah ($314 million) of government bonds at an auction yesterday, short of its 8 trillion rupiah target, according to a statement on its website.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, fell four basis points, or 0.04 percentage point, to 8.73 percent.

The yield on sovereign bonds due May 2023 was little changed at 6.01 percent, the highest level since Sept. 27, prices from the Inter Dealer Market Association show.

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