Rupiah Falls to Four-Month Low as Oil Rally Adds to Deficit Woes

The rupiah fell to a four-month low on concern Indonesia’s trade and budget deficits will worsen after global oil prices surged amid violence in Iraq.

Brent rose 4.4 percent last week and reached a nine-month high of $114.69 per barrel on June 13 as a terrorist group took control of northern Iraq. It has eased 0.9 percent this week. Oil and gas made up 23 percent of Indonesia’s imports in April, and higher prices harm government finances because of fuel subsidies. The Federal Reserve starts a two-day meeting today.

“High global oil prices will weigh on our trade and budget deficits, weakening sentiment on the rupiah,” said Mika Martumpal, treasury research and strategy head at PT Bank CIMB Niaga in Jakarta. “The Fed is likely to further reduce stimulus, which would strengthen the dollar.”

The rupiah lost 0.6 percent to close at 11,893 per dollar, prices from local banks show. It touched 11,900, the weakest level since Feb. 14. In the offshore market, one-month non-deliverable forwards fell 0.7 percent to 11,932, 0.3 percent weaker than the spot rate, data compiled by Bloomberg show.

Indonesia recorded a trade shortfall of $1.96 billion in April, the largest since July, official data show.

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, rose 10 basis points, or 0.1 percentage point, to 9.35 percent. Bank Indonesia set a fixing used to settle the rupiah forwards at 11,863 per dollar today, from 11,814 yesterday.

Government Bonds

The yield on the government’s 8.375 percent bonds due March 2024 climbed two basis points to 8.06 percent, the highest level since June 2, according to the Inter Dealer Market Association.

Indonesia rejected bids for six- and 29-year Islamic bonds at an auction today and sold 185 billion rupiah ($15.6 million) of six-month bills, short of its 1.5 trillion rupiah goal, according to the finance ministry’s debt management office.

The sale shows the government is confident of meeting its financing goal even after it revised the budget deficit to 2.4 percent of gross domestic product, from 1.69 percent, according to I Made Adi Saputra, a fixed-income analyst at PT BNI Securities.

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