The Indonesian rupiah plunged to the weakest point since February following a signal by the central bank that it favors a weaker currency in order to boost exports.
The rupiah plunged 0.7 percent to trade at 12,071 per dollar by 2:19 p.m. local time in Jakarta. The currency had earlier sunk to 12,090, the weakest level since February 12.
Bank Indonesia intends to temporarily push down the value of the rupiah in order to reduce imports and scale up the competitiveness of the country’s exports, according to Senior Deputy Governor Mirza Adityaswara on Tuesday. The trade shortfall expanded to $1.96 billion in April, the most since July 2013. This has affected the current-account shortfall, which is expected to increase in the April-June quarter, up from 2.06 percent of GDP posted in the first quarter of this year.
“Bank Indonesia will likely pare back intervention and allow some weakness,” Leo Rinaldy, a Jakarta-based economist at PT Mandiri Sekuritas told Bloomberg. “Dollar demand for imports ahead of Ramadan, political uncertainty and rising oil prices still contribute to weakening pressure for the rupiah.”
The currency’s one-month implied volatility, which measures the expected shifts in the foreign exchange rate that is used to assign price to options, grew 94 basis points to 10.88 percent, the most since May 5.
Indonesia’s 8.375 percent bonds that mature in March 2024 fell for the fourth consecutive day, making the yield accelerate 0.01 percentage point, or one basis point, to 8.20 percent. This was the highest level since March 26.
Consumer spending is expected to increase once Muslims begin fasting in Ramadan, which starts later this month. Indonesians are also expected to vote on July 9 for a new president. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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