Rupiah Strengthens as Softened Ore-Export Ban Spurs Stock Gains

Indonesia’s rupiah rose the most in six weeks and the stock index had its biggest rally since September after an ore export ban was diluted. Bonds surged on speculation the Federal Reserve will slow the pace of its stimulus reduction.

President Susilo Bambang Yudhoyono signed a rule to prohibit raw mineral shipments, which will still allow exports by more than 60 companies with plans to process domestically, Energy and Mineral Resources Minister Jero Wacik said Jan. 11. The ban, which wasn’t as strict as initially proposed, came into effect yesterday and pushed up nickel and copper prices today. The Jakarta Composite index of shares rose 3.2 percent, the biggest increase since Sept. 19.

“The rupiah is likely to be the main winner given the Sunday changes to the mineral ore export ban,” Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong, wrote in a research note today. “The regulations were significantly diluted.”

The rupiah gained 0.9 percent, the most since Dec. 2, to 12,050 per dollar as of 4:09 p.m. in Jakarta, prices from local banks show. One-month non-deliverable forwards rose 0.1 percent to 11,904 and touched 11,830 earlier, the strongest since Dec. 3. The contracts traded at a 1.2 percent premium to the onshore spot rate, according to data compiled by Bloomberg.

The JCI rallied as banking, property and construction shares rose because of the strengthening rupiah, said Ikhsan Binarto, an analyst at PT Indo Premier Securities in Jakarta. PT Bank Rakyat Indonesia, the nation’s second-largest lender by assets, surged 9.9 percent and PT Bank Mandiri, the biggest, gained 6.4 percent.

Current Account

Full implementation of the initially drafted ore ban would worsen Indonesia’s current-account position by about 0.6 percent of gross domestic product, David Sumual, chief economist at PT Bank Central Asia in Jakarta, said last week. The impact of the diluted prohibition on the shortfall would be about 0.25 percent of GDP, he said.

The nation’s current-account gap was probably less than 3 percent of GDP last quarter, compared with 3.8 percent in the three months through September, central bank governor Agus Martowardojo said last week.

U.S. employers added 74,000 workers last month, the least since January 2011, data showed Jan. 10, tempering concern the Fed will cut stimulus further.

Indonesia’s 8.375 percent sovereign bonds due March 2024 rose, pushing the yield down 11 basis points, or 0.11 percentage point, to 8.69 percent, according to the Inter Dealer Market Association. The rate has dropped 37 basis points in three days.

Volatility, Fixing

“The market is keeping a close eye on any clues to the pace of Fed tapering,” said Nurul Eti Nurbaeti, Jakarta-based head of treasury research at PT Bank Negara Indonesia. “The ore ban will be positive for the trade balance in the long run once the smelters are completed and exports improve in value.”

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, dropped 74 basis points to 13.49 percent. A fixing used to settle the currency forwards was set at 11,812 per dollar today by the Association of Banks in Singapore. That was 1.8 percent stronger than 12,033 on Jan. 10.

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