Indonesia Rupiah Drops Past 12,000 as Fed Sparks Outflow Concern

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Bloomberg News by Yudith Ho

September 17, 2014

http://www.bloomberg.com/news/2014-09-18/indonesia-rupiah-drops-past-12-000-as-fed-sparks-outflow-concern.html

The rupiah weakened beyond 12,000 per dollar for the first time since June on speculation foreign investors will cut their holdings of Indonesian assets as the Federal Reserve moves toward raising borrowing costs.

Foreign funds sold $216 million more local equities than they bought this month through yesterday, exchange data show. The U.S. central bank raised its end-2015 median estimate for the federal funds rate by 25 basis points after a two-day meeting that ended yesterday. Indonesia’s current-account deficit was $9.1 billion last quarter, near the record $10.1 billion of a year earlier. Outgoing President Susilo Bambang Yudhoyono is said to have refused a request by his successor to reduce fuel subsidies before his term ends in October.

“Indonesia may be less resilient to outflows compared with its peers,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “We haven’t seen much improvement on the current-account or the fiscal side with the fuel subsidies still to be decided.”

The rupiah fell 0.7 percent to 12,038 per dollar as of 9:28 a.m. in Jakarta, prices from local banks show. It earlier dropped to 12,041, the lowest level since June 27. In the offshore market, one-month non-deliverable forwards lost 0.6 percent to 12,138, 0.8 percent weaker than the onshore rate, data compiled by Bloomberg show.

Bank Indonesia set a fixing used to settle rupiah forwards at 11,908 per dollar yesterday, with today’s rate due at 10 a.m. in Jakarta. One-month implied volatility, a measure of expected swings used to price options, jumped 54 basis points to 11.92 percent, the highest level since July 10, data compiled by Bloomberg show.

Subsidies, Bonds

Yudhoyono has declined to raise fuel prices before he leaves office, saying it’s not a conducive time to do so, President-elect Joko Widodo was cited by news website Tempo as saying after a meeting between the two on Aug. 27. Indonesia’s central bank, the State-Owned Enterprises Ministry,Finance Ministry and the national police have agreed to allow government bodies to hedge against currency moves, Rizal Djalil, head of the nation’s audit agency, said yesterday.

Government bonds declined, with the yield on the 8.375 percent notes due March 2024 rising two basis points, or 0.02 percentage point, to 8.30 percent, according to the Inter Dealer Market Association.

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