Rupiah Completes Weekly Drop on Deficit Concern; Bonds Decline

Indonesia’s rupiah fell this week, and is poised for its worst quarter since 2008, on concern government measures to address record trade and current-account deficits will have limited impact. Government bonds declined.

Imports are likely to remain “large” as companies that buy products from abroad allowed the weaker rupiah to erode profits rather than rein in their purchases, David Sumual, chief economist at PT Bank Central Asia, said yesterday. The government will announce August trade data next week, after imports exceeded exports by a record $2.3 billion in July. Bank Indonesia raised its benchmark interest rate this month and in August to try and stem a slide in the currency.

“The rupiah continues to underperform the rest of the region” partly because government efforts to tackle the trade and current-account deficits are not expected to have much impact, said Roy Teo, a senior currency strategist at ABN Amro Bank NV in Singapore. “If we see signs that the trade and current-account balances are improving then we will be less bearish on the currency.”

The currency slid 1.6 percent this week to 11,538 per dollar as of 4:05 p.m. in Jakarta, the biggest drop after Malaysia’s ringgit among the 10 most-traded Asian currencies, according to prices from local banks compiled by Bloomberg. It fell 0.7 percent today and has tumbled 14 percent this quarter, the most since the final three months of 2008.

One-month non-deliverable forwards lost 1.9 percent this week and 0.9 percent today to 11,455 per dollar in offshore trading. That is 0.7 percent stronger than the onshore spot rate and comes after the contracts traded as much as 6.6 percent weaker than the domestic rate a month ago.

Spot Discount

“In recent times, we see the spot rate at a discount to the forwards, which could be due to several factors, such as month-end demand from importers,” Teo said.

A daily fixing used to settle the forwards was set at 11,296 per dollar today, from 11,011 on Sept. 20, according to the Association of Banks in Singapore.

The government eased mineral-export quotas and increased taxes on luxury-goods imports in August. It plans to relax limits on foreign investment in certain industries next month, Finance Minister Chatib Basri said on Sept. 24.

One-month implied volatility on the rupiah, a measure of expected moves in the exchange rate used to price options, fell 16 basis points this week to 16.71 percent, data compiled by Bloomberg show. It rose 10 basis points, or 0.1 percentage point, today.

The yield on the government’s 5.625 percent bonds due May 2023 climbed 46 basis points this week to 8.34 percent, according to prices from the Inter Dealer Market Association. The rate rose 16 basis points today.

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