Indonesian Rupiah Caps Worst Year Since 2000 on Taper, Deficit

Indonesia’s rupiah completed its biggest annual loss since 2000 due to a record current-account deficit and as the Federal Reserve prepares to pare stimulus that’s boosted inflows to emerging markets.

Global funds sold $1.9 billion more Indonesian stocks than they bought this year through Dec. 27, exchange data show, contributing to a 1 percent drop in the Jakarta Composite Index, its first decline in five years. The Fed said it plans to trim its monthly debt purchases to $75 billion from $85 billion starting next month as the labor market improves. The rupiah is Asia’s worst-performing currency this year, while sovereign bonds posted the region’s biggest losses.

“The government will need to do its best to tackle the problems, one of which is the deficit, for the rupiah to rebound next year,” said Gusti Kahari, a currency trader in Jakarta at PT Bank Artha Graha. “The economy relies heavily on foreign inflows and the first quarter remains a burden because there’s still the Fed taper issue out there.”

The rupiah traded at 12,210 per dollar in Jakarta for a 21 percent loss in 2013, according to prices from local banks compiled by Bloomberg. The currency gained 0.4 percent today, reversing losses, after reaching a five-year low of 12,281 on Dec. 27. Local markets are closed for the next two days for holidays.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined 11 basis points today to 14.75 percent and earlier touched 14.37 percent, the lowest level since Nov. 29, according to data compiled by Bloomberg.

Bonds Slump

Overseas investors began withdrawing funds from emerging markets in May when the Fed first signaled it was considering reducing record stimulus. Indonesian government bonds lost 13.4 percent this year, the worst returns among 31 emerging markets tracked by Bloomberg.

A current-account deficit equivalent to 2.5 percent of gross domestic product is a “feasible” target for 2014, Finance Minister Bambang Brodjonegoro said on Dec. 18. Indonesia reported a 3.8 percent deficit last quarter and a record 4.4 percent shortfall in the preceding three months.

The yield on Indonesia’s 5.625 percent government bonds due May 2023 climbed almost two basis points, or 0.02 percentage point, to 8.49 percent today, according to Inter Dealer Market Association. That’s 17 basis points lower than the rate at the end of last month. The 10-year yield climbed 333 basis points in 2013.

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