Indonesian Rupiah Hits 4-1/2 Year Low On Risk Aversion
Indonesia's rupiah is leading declines in emerging markets this quarter as the currency headed for its worst three-month performance since 2008 due to a record current-account deficit. Government bonds fell.
The currency weakened 14.9 percent since the end of June to 11,658 per dollar as of 10 a.m. in Jakarta, the biggest loss among 24 developing-nation exchange rates tracked by Bloomberg. It fell 6.3 percent in September, the most since April 2009.
The current-account gap will probably rise to 3.6 percent of gross domestic product this year, from 2.8 percent in 2012, according to Barclays Plc. While overseas investors sold a net $730 million of Indonesia stocks this quarter, they added 1.1 trillion rupiah ($96 million) to their sovereign debt holdings, the least since the second quarter of 2012, official data show.
"Weak confidence due to the sustained current-account deficit is the main factor," said Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd., Southeast Asia's largest bank. "The current account recovery will not be too significant until the first half of next year, so it will be difficult to see a rebound in the rupiah."
One-month non-deliverable forwards declined 12.3 percent this quarter and 1.3 percent in September to 11,587 per dollar, which was 0.6 percent stronger than the onshore spot rate today after trading as much as 6.6 percent weaker on Aug. 27. The contracts fell 1.2 percent today.
A daily fixing used to settle the forwards was set at 11,296 per dollar on Sept. 27, compared with 9,981 at the end of June, according to the Association of Banks in Singapore.
Trade, inflation
Data tomorrow may show the trade deficit in Southeast Asia's biggest economy narrowed to $2.1 billion last month, compared with a record $2.3 billion shortfall in July, according to an ING Groep NV research report today authored by Tim Condon, head of Asia research. Figures on inflation, which was 8.8 percent in August, will also be issued.
"With softening domestic demand and associated import compression, we expect the current-account deficit to improve to 3.1 percent of GDP in 2014," said Prakriti Sofat, an economist at Barclays in Singapore. "The weakness in the rupiah is driven by the structural current-account deficit, concerns about policy management and global market volatility."
One-month implied volatility in the rupiah, a measure of expected moves in the exchange rateused to price options, climbed 287 basis points, or 2.87 percentage points, to 17 percent this quarter, data compiled by Bloomberg show.
Bond losses
Bank Indonesia has raised its benchmark interest rate four times this year, most recently by 25 basis points in September to 7.25 percent. The move is intended to accelerate the adjustment in the current account, according to a Sept. 12 statement from the central bank posted on its website.
Indonesia's local-currency government bonds are the worst performing among 10 Asian debt indexes compiled by HSBC Holdings this year with a loss of 12.7 percent.
The yield on the 5.625 percent notes due May 2023 climbed 140 basis points from June 30 to 8.53 percent and is up 334 basis points in 2013, prices from the Inter Dealer Market Association show. The rate rose for a third straight quarter, the longest stretch since the period ended June 2008.
Bloomberg
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