Rupiah Forwards Drop Most in Week, Bonds Fall Before Fed Meeting

Indonesia’s rupiah forwards fell the most in a week and government bonds declined before the Federal Reserve starts a meeting today to decide whether to cut stimulus that has buoyed demand for emerging-market assets.

The U.S. central bank will probably reduce its bond buying to $75 billion a month from $85 billion, according to a Bloomberg survey this month. Global funds pulled 2.2 trillion rupiah ($197 million) from local-currency sovereign notes in the month through Sept. 13, finance ministry data show. Bank Indonesia raised its policy rate by 1.5 percentage points in the last three months to help narrow the current-account deficit, which was a record $9.8 billion in the second quarter.

“The outlook for the rupiah, as with other emerging-market currencies, is really dependent on how much the Fed is going to do,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “We still need to see an improvement in the external balance numbers.”

Rupiah one-month non-deliverable forwards slid 1 percent to 11,314 per dollar as of 4 p.m. in Jakarta, the biggest drop since Sept. 5, data compiled by Bloomberg show. The contracts traded 1.2 percent stronger than the spot rate, which fell 0.6 percent to 11,451, according to prices from local banks. The forwards have traded 3.2 percent weaker on average than the spot rate over the past month.

Volatility, Bonds

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose four basis points, or 0.04 percentage point, to 17.4 percent, data compiled by Bloomberg show. A fixing used to settle the rupiah forwards was set at 11,224 per dollar today, compared with 11,101 yesterday, according to the Association of Banks in Singapore.

Indonesia’s $1.5 billion dollar sukuk sale last week was its last global offering this year, although the government is seeking to raise $500 million of greenback-denominated notes onshore in October, Robert Pakpahan, director general at the Finance Ministry’s debt management office, said in Jakarta today.

The yield on the 5.625 percent securities due May 2023 rose 13 basis points to 8.16 percent, the biggest increase since Sept. 4, according to prices from the Inter Dealer Market Association.

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