Rupiah Plunges by Most Since 2008 to Match Offshore Forwards

The rupiah tumbled by the most in almost five years in onshore trading, converging with the currency’s offshore forwards, on speculation Bank Indonesia relaxed efforts to prop up the exchange rate.

The rupiah fell as much as 3.2 percent to 11,515 per dollar in the biggest slide since November 2008 before paring losses to trade 0.7 percent weaker at 11,235 per dollar as of 4:32 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. One-month non-deliverable forwards advanced 0.3 percent to 11,483 in Singapore, 2.2 percent weaker than the spot rate after overlapping with it earlier. The discount averaged 5 percent in the last two weeks.

“Bank Indonesia is allowing the spot rate to weaken,” said Andy Ji, a foreign-exchange strategist at Commonwealth Bank of Australia in Singapore. “If you look for the fair value, this looks like a normalization of the market, but I’m not convinced this trend will continue.”

The rupiah has plunged 12 percent this quarter, the most among 24 emerging-market exchange rates tracked by Bloomberg, as Indonesia posted record current-account and trade deficits amid speculation the Federal Reserve will soon cut stimulus. The central bank has burned through $19.8 billion of foreign-currency reserves this year to support the exchange rate.

“We need to keep the rupiah exchange rate against the dollar from weakening further,” President Susilo Bambang Yudhoyono told reporters in Jakarta today. Bank Indonesia didn’t respond to a text-message from Bloomberg seeking comment.

Global Sukuk

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, fell nine basis points, or 0.09 percentage point, to 19.89 percent, according to data compiled by Bloomberg.

The trade deficit climbed to a record $2.3 billion in July, while the current-account shortfall widened to $9.8 billion in the second quarter, the largest in data compiled by Bloomberg going back to 1989, official data show.

“The exchange rate is reaching an equilibrium,” said Fahrudin Haris Prastowo, a trader at PT Bank Rakyat Indonesia in Jakarta. “There’s less disparity now between the rupiah rates, which will be positive for markets and local corporations.”

A fixing used to settle the rupiah forwards was set at 11,372 per dollar today, compared from 11,605 yesterday, according to the Association of Banks in Singapore.

The nation’s global Islamic bonds advanced after the government said it is offering $1.5 billion of five-year sukuk, according to Dahlan Siamat, Islamic financing director at the debt management office. The yield on the 3.3 percent notes due November 2022 fell 22 basis points to 6.62 percent, the most since June 28, data compiled by Bloomberg show.

“Demand for the global sukuk should be good, so we see dollar yields in the secondary market adjusting lower,” said Mika Martumpal, head of treasury research and strategy at PT Bank CIMB Niaga in Jakarta.

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