Indonesia Bonds, Rupiah Gain as Summers Quits Race for Fed Chief

Jakarta Globe, Bloomberg, September 16, 2013

Rupiah forwards strengthened for a third day after the central bank raised
interest rates last week. (Reuters Photo/Enny Nuraheni.)

Indonesia’s bonds advanced, driving the 10-year yield to a one-month low, and rupiah forwards gained after Lawrence Summers withdrew from the race to become the next Federal Reserve chief.

Summers may have provided less monetary stimulus than Chairman Ben S. Bernanke when his term ends in January, according to a Bloomberg Global Poll in which 47 percent of respondents said Janet Yellen, another candidate, would stick with the current policy. One-month non-deliverable rupiah forwards climbed for a third day after the central bank raised interest rates last week to stem a slide in the currency.

“Summers is more conservative and would have been keen to reduce stimulus sooner as he thinks the U.S. economy has improved,” said Rully Nova, a foreign-exchange analyst at PT Bank Himpunan Saudara 1906 in Jakarta. “Continuing euphoria over Bank Indonesia’s responsiveness in raising rates to tackle inflation is also supporting the rupiah and bonds.”

The yield on the 5.6 percent notes due May 2023 fell 40 basis points, or 0.4 percentage point, to 8 percent as of 9:45 a.m. in Jakarta, the lowest level since Aug. 14 and the biggest drop in almost two months, according to prices from the Inter Dealer Market Association.

One-month rupiah forwards rose 1 percent to 11,155 per dollar, trading 2.3 percent stronger than the spot rate, the biggest premium in data tracked by Bloomberg going back to 2001. In the onshore market, the currency was little changed at 11,416 from 11,410 on Sept. 13, prices from local banks compiled by Bloomberg show.

Ease inflation

Bank Indonesia boosted its benchmark reference rate to 7.25 percent on Sept. 12 from 7 percent. The move will speed up an improvement in the current-account deficit and stabilize inflation, Deputy Governor Perry Warjiyo said the same day. Consumer prices rose 8.8 percent in August from a year earlier, the fastest pace in four years, official data showed Sept. 2.

One-month implied volatility in the rupiah, a measure of expected moves in the exchange rate used to price options, fell 65 basis points to 17.8 percent, the least since Aug. 20, data compiled by Bloomberg show. A fixing used to settle rupiah forwards was set at 11,174 per dollar on Sept. 13, according to the Association of Banks in Singapore.

Bloomberg

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