Indonesian businesses asked to start hedging “beyond usual” as rupiah tumbles

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Indonesia’s central bank on April 25 urged businesses in the country to hedge their foreign exchange needs beyond minimum requirements, as policymakers seek to mitigate risks of further capital outflows following the rupiah’s slump, Reuters reported.

Indonesia’s rupiah tumbled to a 27-month low to 13,925 against the US dollar on April 25 despite the central bank intervening in the market since early February to ease heightened volatility. That has raised concern that Bank Indonesia may be trying in vain to defend the currency as emerging markets face pressure from a surging US dollar.

The Indonesian currency along with the Philippine peso and Indian rupee are among the underperformers among developing economies globally this year. With US ten-year treasury yields breaching three per cent on April 24, the rupiah faced renewed selling pressure.

Nanang Hendarsah, who heads the department at Bank Indonesia responsible for deepening financial markets, said that hedging schemes for private businesses will help foster stability in the currency market. The rupiah’s heightened volatility risks also come at a time when many companies usually pay their offshore debts and transfer dividends abroad, pushing US dollar demand higher, he said.

“Even though Bank Indonesia will continue to maintain stability of the currency, we need the support of many parties to maintain this through hedging schemes,” Hendarsah told Reuters.

Southeast Asia’s largest economy is especially vulnerable to sudden capital flight from its sovereign bond market, which could weaken the rupiah further.  Foreigners owned 861.02 trillion rupiah ($61.94 billion) worth of Indonesian government bonds or 39 per cent of the total, as of April 24.

They sold a combined 12.32 trillion rupiah worth of Indonesian bonds and stocks in the three consecutive trading days preceeding the previous day.

Indonesian lawmakers have warned earlier that the psychological exchange rate level to the US dollar is 15,000 rupiah. If breached, many businesses would likely file for bankruptcies which would result in sizeable layoffs and increase uncontrollable debt increase.

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Reading Time: 2 minutes

Indonesia’s central bank on April 25 urged businesses in the country to hedge their foreign exchange needs beyond minimum requirements, as policymakers seek to mitigate risks of further capital outflows following the rupiah’s slump, Reuters reported.

Reading Time: 2 minutes

Indonesia’s central bank on April 25 urged businesses in the country to hedge their foreign exchange needs beyond minimum requirements, as policymakers seek to mitigate risks of further capital outflows following the rupiah’s slump, Reuters reported.

Indonesia’s rupiah tumbled to a 27-month low to 13,925 against the US dollar on April 25 despite the central bank intervening in the market since early February to ease heightened volatility. That has raised concern that Bank Indonesia may be trying in vain to defend the currency as emerging markets face pressure from a surging US dollar.

The Indonesian currency along with the Philippine peso and Indian rupee are among the underperformers among developing economies globally this year. With US ten-year treasury yields breaching three per cent on April 24, the rupiah faced renewed selling pressure.

Nanang Hendarsah, who heads the department at Bank Indonesia responsible for deepening financial markets, said that hedging schemes for private businesses will help foster stability in the currency market. The rupiah’s heightened volatility risks also come at a time when many companies usually pay their offshore debts and transfer dividends abroad, pushing US dollar demand higher, he said.

“Even though Bank Indonesia will continue to maintain stability of the currency, we need the support of many parties to maintain this through hedging schemes,” Hendarsah told Reuters.

Southeast Asia’s largest economy is especially vulnerable to sudden capital flight from its sovereign bond market, which could weaken the rupiah further.  Foreigners owned 861.02 trillion rupiah ($61.94 billion) worth of Indonesian government bonds or 39 per cent of the total, as of April 24.

They sold a combined 12.32 trillion rupiah worth of Indonesian bonds and stocks in the three consecutive trading days preceeding the previous day.

Indonesian lawmakers have warned earlier that the psychological exchange rate level to the US dollar is 15,000 rupiah. If breached, many businesses would likely file for bankruptcies which would result in sizeable layoffs and increase uncontrollable debt increase.

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