Indonesia’s Rupiah, Government Bonds Plunge on Fed Taper Concern

Indonesia’s rupiah and bonds plunged as U.S. jobs data that topped estimates fueled concern the Federal Reserve will bring forward a plan to cut stimulus that’s buoyed emerging markets.

The currency slid the most since August while the yield on 10-year government notes had the biggest increase in four months. Employers in the world’s largest economy added 204,000 workers in October, beating the most optimistic forecast in a Bloomberg survey, official data showed Nov. 8. Fed policy makers said last month they needed to see more economic improvement before reducing monthly bond purchases.

“There is concern that the Fed’s tapering may be brought forward due to improving U.S. data,” said Suriyanto Chang, head of treasury at PT Bank QNB Kesawan in Jakarta. “The rupiah’s weakness shouldn’t be a trigger for Bank Indonesia to raise rates as it would help reduce imports” as declines in the local currency make inward shipments costlier, he said.

The rupiah slid 1.3 percent to 11,560 per dollar, the biggest drop since Aug. 20, as of 4:33 p.m. in Jakarta, prices from local banks show. It reached 11,565 earlier, the weakest level since Oct. 4. In the offshore market, one-month non-deliverable forwards fell 0.8 percent to 11,559, according to data compiled by Bloomberg.

The yield on the nation’s 5.625 percent bonds due May 2023 climbed 41 basis points to 8.35 percent, the biggest increase since July 8, prices from the Inter Dealer Market Association show. The cost to insure Indonesia’s debt against non-payment using five-year credit-default swaps climbed 17 basis points to 237 on Nov. 8, the highest level since Oct. 9, according to data provider CMA.

Bank Indonesia

Bank Indonesia will keep its benchmark interest rate unchanged at 7.25 percent when it convenes for its monthly monetary policy meeting tomorrow, according to 16 of 17 analysts in a Bloomberg survey.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, rose 38 basis points, or 0.38 percentage point, to 15.31 percent. A daily fixing used to settle the forwards was set at 11,333 per dollar today, from 11,267 on Nov. 8, according to the Association of Banks in Singapore.

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