Indonesia Rupiah Sinks to 16-Year Low as Bonds Slide on Outflows

By Liau Y-Sing and Yumi Teso

Photographer: Dimas Ardian/Bloomberg

Agus Martowardojo, Governor of Bank Indonesia, told reporters in Jakarta on Dec. 12 the... Read More

Indonesia’s rupiah tumbled to the lowest level since the Asian financial crisis as an uptick in dollar buying by local companies before the year-end coincided with a rout in the sovereign bond market.
The currency slid 1.9 percent to 12,698 per dollar in Jakarta, the lowest close since August 1998, prices from local banks show. That was the biggest drop since Aug. 1. In the offshore market, one-month non-deliverable forwards declined 1.4 percent to 12,919, according to data compiled by Bloomberg.
Overseas investors have pulled 10.09 trillion rupiah ($795 million) from local-currency sovereign bonds this month through Dec. 11, finance ministry data show, as the
prospect of U.S. interest-rate increases damped demand for emerging-market assets. Indonesia’s current account, which has been in deficit for the past 12 quarters, makes it vulnerable as concern over the global economic outlook deters risk-taking. The yield on the country’s 10-year sovereign notes jumped the most since January.
“Year-end dollar demand from local corporations as well as flows related to recent selling of bonds seem to be weighing on the currency,” said Shigehisa Shiroki, chief trader on the Asian and emerging markets team at Mizuho Bank Ltd. in Tokyo. The market is beginning to worry about possible intervention, he said.

‘Always Present’

“Bank Indonesia is always present in the foreign-exchange market for stabilization,” Mirza Adityaswara, a senior deputy governor at Bank Indonesia, said in a mobile-phone text message. The central bank is “present” in the sovereign bond market today, he said.
The rupiah is weakening on a “combination of a stronger dollar globally and higher demand for dollars in the domestic market for imports and interest-debt payments,” Finance Minister Bambang Brodjonegoro said in a text message today.
One-month implied volatility in the rupiah, a measure of expected swings used to prices options, surged 3.62 percentage points to 12.56 percent. It reached 12.68 percent, the highest since July 9.
The rupiah will be under pressure for now and Bank Indonesia is still in the market to check volatility, Governor Agus Martowardojo told reporters in Jakarta on Dec. 12. The central bank set a fixing used to settle rupiah forward contracts at 12,599 per dollar, 1.3 percent weaker than 12,432 on Dec. 12.
The yield on Indonesia’s government bonds due March 2024 rose 23 basis points to 8.45 percent, the highest level since Oct. 8, according to the Inter Dealer Market Association. The yield has increased 75 basis points, or 0.75 percentage point, this month.

Current Account

The Jakarta Composite Index (JCI) of shares fell 1 percent, the most since Oct. 13, as the MSCI Emerging Markets Index headed for its lowest close since February. Overseas investors have pulled $176 million from Indonesian stocks this month, exchange data show. Economic weakness in Japan and the euro area and falling oil prices are damping demand for emerging-market assets.
Indonesia recorded a current-account deficit of $6.8 billion in the third quarter and the central bank expects a shortfall of $24 billion in the broadest measure of trade for the full year. Southeast Asia’s largest economy will expand 5.1 percent in 2014, the slowest pace since 2009, according to the median estimate of analysts in a Bloomberg survey.
“The general tone in markets is more risk-averse,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Singapore. “That could be due to global growth concerns, deflation concerns.”