Indonesian Rupiah Falls to Four-Year Low on Fed Tapering Concern

Indonesia’s rupiah fell to a four-year low on concern rising U.S. home sales will prompt the Federal Reserve to start reducing stimulus that has spurred demand for emerging-market assets.

June sales of new houses in the world’s largest economy climbed to a five-year high, official figures showed yesterday. Fed Chairman Ben S. Bernanke said last week the central bank will respond to data in determining whether to taper or increase its monthly bond purchases. Global funds added 3.31 trillion rupiah ($323 million) to holdings of local-currency government debt this month, after pulling 19.98 trillion rupiah in June, finance ministry data show.

The rupiah declined 0.1 percent to 10,268 as of 3:33 p.m. in Jakarta, after reaching 10,286 earlier, the weakest level since July 2009, prices from local banks show. The spot rate traded at a 2.4 percent premium to the one-month non-deliverable forwards, which fell 0.4 percent to 10,519 after touching a four-year low of 10,548, data compiled by Bloomberg show. A fixing by the Association of Banks in Singapore that is used to settle the forwards was set at 10,299.

“The market is data-dependent and the focus is still very much on the tighter Fed funding and what that means for the rupiah,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “The fact that Bank Indonesia allowed the rupiah to depreciate has relieved some capital outflow pressure, but we would like to see a more hawkish tone.”

New Equilibrium

The exchange rate is in line with economic fundamentals and is moving toward a new equilibrium, Bank Indonesia said in a statement this week. The central bank has allowed the currency to gradually weaken this month, Deputy Governor Perry Warjiyo said on July 12, adding that the 75 basis point increase in the reference rate to 6.5 percent over the past two meetings is enough to manage inflation.

The monetary authority granted $1.22 billion of currency swaps at an auction today, compared with a $600 million target and the $1.49 billion of bids received, Peter Jacobs, director of communications, said by phone today. Bank Indonesia is considering offering the swaps more often than the current weekly schedule to meet foreign-currency demand, Governor Agus Martowardojo said in Jakarta today.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped five basis points, or 0.05 percentage point, to 12.47 percent, data compiled by Bloomberg show.

The yield on the 5.625 percent bonds due May 2023 rose 22 basis points to 7.99 percent, according to prices from the Inter Dealer Market Association. The rate will fall to 6.8 percent to 7.3 percent by year-end, PT Mandiri Sekuritas analysts led by Jakarta-based Handy Yunianto wrote in a research note today.

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