Bloomberg News

Rupiah Forwards Weaken to Three-Week Low on Rising Dollar Demand

September 26, 2012

Indonesia’s rupiah forwards fell to an almost three-week low on speculation the prospect of an economic slowdown prompted investors to favor the relative safety of the dollar. Government bonds declined.

The rupiah touched the weakest level since May after overseas funds pulled 680 billion rupiah ($71 million) from local sovereign-debt holdings on Sept. 24, finance ministry data show. Investors bid for 2.4 times the amount offered at a government bond auction yesterday, compared with 2.8 times at the previous sale on Sept. 11. Indonesia’s economic growth will slow to 6 percent this year from 6.5 percent in 2011, according to an International Monetary Fund report released yesterday.

“The spot price tends to follow the forwards market, which is quite bearish on the rupiah,” said Artanavaro Gasali, the head of global markets at PT Bank ICBC Indonesia in Jakarta. “Domestic demand for dollars is still the major factor, both from investors seeking a safe haven and to fulfill corporate needs. Demand for bonds has also receded.”

Twelve-month non-deliverable forwards for the rupiah weakened 0.5 percent to 10,145 per dollar as of 4:03 p.m. in Jakarta, the lowest level since Sept. 6, data compiled by Bloomberg show. The contracts, which are agreements to buy or sell assets at a set price and date, traded at a 5.8 percent discount to the spot rate. Non-deliverable forwards are settled in dollars.

The IMF estimated that the rupiah is “moderately undervalued” by zero to 10 percent, the Washington-based lender said in its report yesterday.

Fifth Quarterly Drop

The rupiah was little changed at 9,585 per dollar, after reaching 9,628 earlier, the lowest level since May 31, prices from local banks compiled by Bloomberg show. The currency has lost 1.6 percent since June 29, poised for its fifth quarterly decline in a row.

One-month implied volatility in the rupiah, which measures exchange-rate swings used to price options, was steady at 5 percent.

The yield on the government’s 7 percent bonds due May 2022 rose three basis points, or 0.03 percentage point, to 6.02 percent, the highest level since Sept. 6, closing prices from the Inter Dealer Market Association show.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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