Rupiah Declines Most in Three Weeks to Near Offshore Forwards

Indonesia’s rupiah fell by the most in three weeks on speculation the central bank is allowing the onshore rate to weaken toward offshore-forward levels to boost exports. Government bonds advanced.

The currency slid 1 percent to 11,345 per dollar as of 4:01 p.m. in Jakarta, the biggest drop since Aug. 20, according to prices from local banks. In the offshore market, the rupiah’s one-month non-deliverable forwards were unchanged at 11,488, 1.2 percent weaker than the spot rate, data compiled by Bloomberg show. That compares with a 5 percent average discount in the past two weeks.

The trade deficit widened to a record $2.3 billion in July, weighing on the current-account shortfall, which reached $9.8 billion in the second quarter, the largest in data compiled by Bloomberg going back to 1989. The current-account gap will narrow this quarter as the economy slows after Bank Indonesia raised borrowing costs by 1.25 percentage points in the last three months, Finance Minister Chatib Basri said last week.

“The onshore rate is moving toward the offshore rates in line with the government’s policy to ensure that the current-account recovery is supported,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The rupiah is more vulnerable in the current global sentiment because of its deficit issues.”

The central bank will meet for its monthly board of governors meeting tomorrow, with 16 of 23 economists predicting the reference rate will be held at 7 percent while four expect a 25 basis point increase and three forecast a 50 basis point boost, according to a Bloomberg survey.

Global Sukuk

One-month implied volatility on the rupiah, a measure of expected moves in the exchange rate used to price options, decreased 83 basis points, or 0.83 percentage point, to 19.02 percent, data compiled by Bloomberg show. A fixing used to settle the rupiah forwards was set at 11,321 per dollar today, compared with 11,372 yesterday, according to the Association of Banks in Singapore.

The nation sold $1.5 billion of dollar-denominated sukuk at 6.125 percent, with investors submitting $5.6 billion of bids, Dahlan Siamat, Islamic financing director at the debt management office in Jakarta, said today.

The yield on the nation’s 5.625 percent bonds due May 2023 fell 10 basis points to 8.72 percent, the lowest level since Sept. 3, prices from the Inter Dealer Market Association show.

“We need to see improvement in the trade and current-account data to see a sustained rally,” said Handy Yunianto, Jakarta-based head of fixed-income research at PT Mandiri Sekuritas, unit of the nation’s largest lender.

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