Rupiah Weakens Most in Asia This Month as Fed Triggers Outflows

Indonesia’s rupiah fell the most in Asia this month as foreign funds pulled money from local stocks in preparation for an increase in U.S. interest rates.

Overseas investors sold $542 million more shares than they bought in September, the biggest outflow since June 2013, exchange data show. The U.S. central bank raised its end-2015 median estimate for the fed funds rate by 25 basis points to 1.375 percent this month. Indonesia had $111.2 billion of foreign reserves in August, enough to cover 6.5 months of imports, compared with 11 months for the Philippines, central bank figures show.

“Indonesia remains among the most vulnerable in the region to any risk-off moves due to the foreign-reserves ratio,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore. “The main thing the market is watching for is the reform prospects under the new government.”

The rupiah declined 4 percent this month, the most since November, to 12,185 per dollar as of 4:05 p.m. in Jakarta, prices from local banks show. It weakened 0.1 percent today and 2.7 percent this quarter. One-month non-deliverable forwards traded offshore fell 4.4 percent in September and 0.1 percent today to 12,340, data compiled by Bloomberg show. The contracts traded 1.3 percent weaker than the spot rate.

The outgoing parliament passed a bill abolishing direct local elections on Sept. 26, a setback for President-elect Joko Widodo and the parties supporting him as he opposed it. The legislature approved a revised 2015 budget yesterday, without cutting energy subsidies. Widodo, who takes office Oct. 20, has indicated he intends to reduce subsidies.

Fuel Subsidies

“People don’t see the point of another budget revision that doesn’t take into account an impending major adjustment to the most important variable in the budget: fuel prices,” said Wai Ho Leong, a senior regional economist at Barclays Plc in Singapore. “If it does not happen in November, markets will be disappointed.”

The central bank set a fixing used to settle the rupiah forwards at 12,212 today, from 11,717 on Aug. 29. One-month implied volatility, a measure of expected currency swings used to price options, jumped 290 basis points this month, the most since August 2013, to 11.46 percent, according to data compiled by Bloomberg.

Sovereign bonds fell this month, with the yield on the 8.375 percent notes due March 2024 rising 34 basis points, or 0.41 percentage point, to 8.50 percent in the biggest increase since January, according to the Inter Dealer Market Association. The yield climbed six basis points today.

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