Rupiah Forwards Plunge to Biggest Discount to Spot Since 2011

Indonesia’s rupiah forwards fell to the biggest discount to the spot rate in 20 months after foreign funds pulled money from the nation’s assets amid concern there is a local shortage of dollars.

One-month non-deliverable forwards declined 2.3 percent to 10,355 per dollar as of 3 p.m. in Jakarta, the weakest level since August 2009, data compiled by Bloomberg show. They were at a 5.2 percent discount to the exchange rate quoted by Indonesian banks, the most since Sept. 30, 2011. The spot rate fell 0.1 percent to 9,815, prices from local lenders show.

Overseas investors have pulled $812 million from local-currency government bonds and stocks this month, finance ministry and exchange data show, on speculation the Federal Reserve will reduce its debt-buying that has fueled fund flows to emerging markets. Indonesia has recorded six consecutive quarterly current-account deficits, official data show, and it is becoming difficult to get the greenback onshore, according to Herdi Wibowo, head of fixed income at PT BCA Sekuritas.

“It’s all about the supply of U.S. dollars,” Jakarta-based Wibowo said today. “Bank Indonesia is keeping the spot rate from breaching the 10,000 level for now,” he said, adding that the rupiah would probably weaken further as a delay in raising the price of subsidized fuel boosts energy imports and worsens the current-account shortfall.

‘Pressure Escalating’

The government announced it may adjust subsidized fuel prices in January, while President Susilo Bambang Yudhoyono made an increase conditional on parliament approving a compensation package for the poor on April 30. Prices will be increased after the 2013 budget revision is finished by June 17, Coordinating Minister for the Economy Hatta Rajasa said last week.

The rupiah forward has fallen 3.8 percent in two days, while the spot rate has declined 0.2 percent. Bank Indonesia will continue to intervene in the currency market to guard the exchange rate at a level that reflects economic fundamentals, Governor Agus Martowardojo said May 30. The central bank remains in the market to stabilize the rupiah, spokesman Difi Johansyah said today.

“We see the rupiah pressure escalating,” said Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender by assets. “Bank Indonesia will intervene in the market until there’s clarity on the fuel policy decision,” he said, adding that the central bank would not be able to continue doing this indefinitely.

Currency Fixings

The rupiah, together with the Indian rupee and the Malaysian ringgit, is most at risk of a further volatility rise and it has one of the highest intervention chances, said Wee-Khoon Chong, a Societe Generale SA strategist in Hong Kong.

“We saw aggressive BI activities this morning and more can be expected,” Chong wrote in a note today, referring to Bank Indonesia.

The central bank set its Jakarta Interbank Spot Dollar Rate, used by local lenders to settle currency derivatives, at 9,806 per dollar today. That was 2 percent stronger than the Association of Banks in Singapore’s equivalent fixing, which was set at 10,006, 1.9 percent weaker than the spot rate. Indonesia’s central bank introduced its own onshore benchmark last month after the Monetary Authority of Singapore began an investigation into the offshore fixings in September.

Indonesia’s trade outlook worsened after data released over the weekend showed China’s export gains were at a 10-month low in May and factory output rose less than forecast.

“The rupiah’s fundamentals look very weak,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Given its large current-account deficit, Indonesia needs to attract $1 billion of portfolio inflows each month just to keep the rupiah from depreciating.”

The rupiah’s one-month implied volatility, a measure of expected moves in the exchange rate used to price options, surged 4.82 percentage points to 13.50 percent.

The yield on the 5.625 percent sovereign bonds maturing in May 2023 rose nine basis points, or 0.09 percentage point, to

6.35 percent, the highest in almost a year, according to prices from the Inter Dealer Market Association.

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