Rupiah Forwards Decline as Central Bank Forecast to Hold Rate

Indonesia’s rupiah forwards fell as economists forecast the central bank will keep the benchmark interest rate unchanged today, even as a slide in the rupiah threatens to fuel inflation.

The currency is Asia’s worst-performing currency in the past 12 months and Indonesia’s inflation is the fastest in Southeast Asia. The monetary authority will keep its reference rate at 7.5 percent, the highest since 2009, according to 15 of 18 estimates in a Bloomberg survey, with three predicting a 25 basis-point increase. The nation’s foreign-exchange reserves climbed 2.5 percent last month to the highest since May.

“Even with the rupiah weakness, Bank Indonesia will probably hold the rate,” said Gusti Kahari, a currency dealer at PT Bank Artha Graha Internasional in Jakarta. “The foreign reserves returning to a good level will help restore market confidence.”

The rupiah’s one-month non-deliverable forwards fell 0.5 percent to 12,188 per dollar as of 9:50 a.m. in Jakarta, data compiled by Bloomberg show. The contracts traded 0.5 percent stronger than the onshore spot rate, which declined 0.1 percent to 12,253 per dollar, prices from local banks show.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 11 basis points, or 0.11 percentage point, to 14.57 percent. A fixing used to settle the forwards was set at 12,083 per dollar yesterday by the Association of Banks in Singapore. Today’s rate will be posted at 10:30 a.m. in Jakarta.

Global Bond

Indonesia raised $4 billion from a global bond sale this week, with investors submitting bids amounting to $17.5 billion, according to a finance ministry statement. That matched South Korea’s record dollar debt offering in 1998.

“The sale is obviously a good thing, but whether it will support the rupiah is a different question,” Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia, said yesterday. “It would be negative for the currency if Bank Indonesia keeps rates unchanged now with the Fed tapering under way.”

The rupiah declined 21 percent over the past 12 months and reached a five-year low of 12,285 per dollar on Jan. 7. The nation’s foreign-exchange reserves climbed to $99.4 billion in December, from $97 billion the previous month, the central bank reported in a statement yesterday.

The yield on the government’s 8.375 percent rupiah notes due March 2024 fell one basis points to 9.05 percent, according to data compiled by Bloomberg.

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