Indonesia’s rupiah slumps to new low

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rupiah1Indonesia’s currency, the rupiah, fell to a new low on September 24 and traded at 11,580 against the US dollar, cementing the rupiah’s role as the worst performing currency in Asia this year and the worst of any major currency worldwide.

While other Asian currencies have gradually recovered in the recent past on the US Federal Reserve’s decision not to reduce its bond buying programme, the rupiah has been the only currency to have slipped against the dollar further.

Traders say one factor deterring investors has been the Indonesian central bank meddling in the reporting of the exchange rate. Although it has now stopped the practice, in August and early September the central bank was routinely reporting a daily exchange “fix” that significantly overvalued the rupiah relative to the market rates in Indonesian banks and in Singapore’s forward market.

The rupiah’s slump led the government to announce a relaxation of rules banning state-owned companies from hedging foreign exchange risk. However, Chatib Basri, Indonesia’s finance minister, pointed to a recent turnround in the bond market as evidence that “long-term investors still have confidence in Indonesia”.

Local currency government bonds have rallied over the past few weeks, with yields on 10-year bonds shrinking from a peak of 8.9 per cent on September 9 to less than 8 per cent.

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Reading Time: 1 minute

Indonesia’s currency, the rupiah, fell to a new low on September 24 and traded at 11,580 against the US dollar, cementing the rupiah’s role as the worst performing currency in Asia this year and the worst of any major currency worldwide.

Reading Time: 1 minute

rupiah1Indonesia’s currency, the rupiah, fell to a new low on September 24 and traded at 11,580 against the US dollar, cementing the rupiah’s role as the worst performing currency in Asia this year and the worst of any major currency worldwide.

While other Asian currencies have gradually recovered in the recent past on the US Federal Reserve’s decision not to reduce its bond buying programme, the rupiah has been the only currency to have slipped against the dollar further.

Traders say one factor deterring investors has been the Indonesian central bank meddling in the reporting of the exchange rate. Although it has now stopped the practice, in August and early September the central bank was routinely reporting a daily exchange “fix” that significantly overvalued the rupiah relative to the market rates in Indonesian banks and in Singapore’s forward market.

The rupiah’s slump led the government to announce a relaxation of rules banning state-owned companies from hedging foreign exchange risk. However, Chatib Basri, Indonesia’s finance minister, pointed to a recent turnround in the bond market as evidence that “long-term investors still have confidence in Indonesia”.

Local currency government bonds have rallied over the past few weeks, with yields on 10-year bonds shrinking from a peak of 8.9 per cent on September 9 to less than 8 per cent.

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