Rupiah Weakens Beyond 10,000 for First Time Since September 2009

Indonesia’s rupiah weakened beyond 10,000 per dollar for the first time since September 2009 as slowing economic growth in China dimmed the outlook for exports and the current-account deficit. Government bonds declined.

China, the No. 1 destination for shipments from the Southeast Asian nation, reported a second-quarter expansion today of 7.5 percent compared with 7.7 percent in the prior three months. Indonesia’s exports contracted for a 14th month in May, giving a trade shortfall of $590 million, official data show. The current-account gap was a record $24.1 billion in 2012 and $5.3 billion in the first three months of 2013.

The rupiah declined 0.3 percent to 10,023 per dollar as of 3:41 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. One-month non-deliverable forwards fell 0.5 percent to 10,218, having traded weaker than the 10,000 level for more than a month. The rupiah’s current level is in line with market conditions and economic fundamentals, Bank Indonesia Deputy Governor Perry Warjiyo said in a mobile-phone text message today.

“A slowing China will impact other Southeast Asian countries and further weigh on our exports,” said Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas, a unit of the nation’s largest lender by assets. “Bank Indonesia’s rate hikes are enough to stem inflation but not to calm markets as external imbalances pressure the currency.”

The monetary authority raised its reference rate by 50 basis points, or 0.50 percentage point, to 6.50 percent on July 11, the biggest increase since 2005, following a 25 basis point move in June. Bank Indonesia is confident the currency will stabilize after the changes, which were aimed at boosting confidence, Warjiyo said.

Rupiah Intervention

The yield on the government’s 5.625 percent bonds due May 2023 rose five basis points to 8.21 percent, the highest level for a benchmark 10-year note since March 2011, according to prices from the Inter Dealer Market Association.

Indonesia’s central bank sold dollars in the past two to three months to support the rupiah, Warjiyo said in a July 12 conference call from Jakarta, and its foreign-exchange reserves dropped below $100 billion in June for the first time since February 2011. Global funds cut their holdings of the nation’s local-currency sovereign debt by 18.2 trillion rupiah ($1.8 billion) since May 22, when the Federal Reserve signaled it may reduce its monthly bond purchases.

Stability Signs

“The rupiah will likely stabilize near here for the next couple of months after it converged with the offshore level and as Bank Indonesia supports it,” said Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia. “Investors are waiting to get in, but this depends on a number of key things like improvement on the current-account deficit and more clarity on the Fed’s policy.”

The rupiah’s onshore spot rate was 1.9 percent stronger than the one-month non-deliverable forwards, having been at a premium of as much as 5.2 percent in June, data compiled by Bloomberg show. Non-deliverable forwards are traded offshore and settled in dollars. The currency is set to decline further to 10,059 by the year-end, according to the median forecast in a Bloomberg survey of analysts.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, lost 53 basis points to 10.71 percent, data compiled by Bloomberg show.

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