Rupiah Weakens as Indonesia’s Trade Balance Returns to Deficit

Indonesia’s rupiah declined as local markets reopened following a week-long holiday on data showing the nation’s trade balance returned to deficit in June.

The currency fell 1.5 percent from July 25 to close at 11,760 per dollar, prices from local banks show. Financial markets were closed last week for the Eid holidays. One-month non-deliverable forwards traded offshore dropped 1.6 percent over the same period and gained 0.1 percent today to 11,824, according to data compiled by Bloomberg.

Imports exceeded exports by $305 million, compared with the median estimate for a $387 million deficit and a $70 million surplus in May, the statistics office said today. Government bonds extended their decline after the country reported inflation of 4.53 percent in July, compared with the 4.40 percent median forecast in a separate Bloomberg survey.

“We expect the trade deficit to narrow in the months ahead but remain persistent,” said Hapiz Azi, an economist at PT Trimegah Securities in Jakarta. “Bank Indonesia will likely allow some rupiah weakness and maintain its tight stance to improve the current account.”

The central bank set a fixing used to settle the forwards at 11,747 per dollar today, from 11,591 on July 25. The current-account deficit was probably around 4 percent of gross domestic product in the second quarter, compared with 2.06 percent in the first three months, Deputy Governor Perry Warjiyo said July 11.

One-month implied volatility in the rupiah, a measure of expected exchange-rate swings used to price options, fell 81 basis points, or 0.81 percentage point, today to 9.70 percent, data compiled by Bloomberg show.

The yield on the government’s 8.375 percent bonds due March 2024 climbed eight basis points since July 25 to 8.12 percent, the highest level since July 16, according to the Inter Dealer Market Association.

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