Indonesia’s rupiah forwards strengthened after the central bank raised the rate it pays lenders on overnight deposits in a preemptive step to maintain monetary stability. Government bonds rose.
One-month non-deliverable forwards gained 0.5 percent to 10,227 per dollar as of 9:43 a.m. in Jakarta after rising by as much as 2 percent earlier, data compiled by Bloomberg show. The contracts touched 10,412 yesterday, the weakest level since August 2009. The rupiah fell 0.3 percent to 9,855, taking its decline this week to 0.5 percent.
Bank Indonesia increased the deposit facility rate, known as the Fasbi, by a quarter-percentage point to 4.25 percent effective today, the central bank said in a statement on its website. Global funds have pulled $1 billion from local stocks this month, exchange data show. Indonesia has recorded six consecutive quarterly current-account shortfalls.
“The external-stability risk has been mounting given the sizable current-account deficit,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore. “This is the start of monetary tightening,” which will be positive for the rupiah, he said.
The central bank will leave its key reference rate at a record-low 5.75 percent tomorrow, according to all 19 economists surveyed by Bloomberg News. An increase in the benchmark rate is now more of a possibility after the Fasbi rate move, Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc., said in an interview today.
The Fasbi increase was aimed at addressing high volatility in the rupiah in the past week, Koon How Heng, a strategist at Credit Suisse Group AG in Singapore, said in an interview today.
“However, near-term prospects of the rupiah will still be primarily driven by investor flows,” he said.
One-month implied volatility in the rupiah, which measures expected moves in the exchange rate used to price options, decreased 15 basis points, or 0.15 percentage point, to 13.8 percent. It touched 14.5 percent yesterday, the highest level in a year.
The yield on the government’s 5.625 percent bonds due May 2023 dropped four basis points to 6.64 percent, prices from the Inter Dealer Market Association show. The yield touched 6.68 percent yesterday, the highest since 2011.
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