Rupiah Drops to Four-Month Low as Central Bank Helps Exports

Indonesia’s rupiah fell to the lowest level since February after the central bank said it will allow weakness in the currency to help exports.

Bank Indonesia is letting the rupiah be temporarily “undervalued” to improve the competitiveness of the nation’s shipments and to reduce imports, Senior Deputy Governor Mirza Adityaswara said in Jakarta yesterday. The trade shortfall widened to $1.96 billion in April, the largest since July last year. That weighs on the current-account deficit, which is set to expand this quarter from the 2.06 percent of gross domestic product recorded in the first three months of the year.

The currency fell 0.8 percent to close at 12,090 per dollar, prices from local banks show. It reached 12,094 earlier, the lowest level since Feb. 12. In the offshore market, one-month non-deliverable forwards declined 0.9 percent to 12,151, trading 0.5 percent weaker than the onshore spot rate, data compiled by Bloomberg show.

“Bank Indonesia will likely pare back intervention and allow some weakness,” said Leo Rinaldy, an economist at PT Mandiri Sekuritas in Jakarta. “Dollar demand for imports ahead of Ramadan, political uncertainty and rising oil prices still contribute to weakening pressure for the rupiah.”

Spending typically rises during the Muslim fasting month of Ramadan, which will start in late June, while Indonesians head to polls on July 9 to choose a president. Oil prices have climbed this month as militants captured territory in Iraq, the Organization of the Petroleum Exporting Countries’ second-largest producer.

Volatility, Fixing

The rupiah’s one-month implied volatility, a measure of expected swings in the exchange rate used to price options, rose 94 basis points to 10.88 percent, the highest since May 5. Bank Indonesia set a fixing used to settle rupiah forwards at 12,027 per dollar today, from 12,000 yesterday.

The government’s 8.375 percent bonds due March 2024 declined for the fourth straight day, pushing the yield three basis points, or 0.03 percentage point, higher to 8.225 percent, according to the Inter Dealer Market Association. That’s the highest level since March 25.

(An earlier version of this story corrected Bank Indonesia’s rupiah fixing.)

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