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Rupiah set to decline for fourth week on central bank tolerance

Friday, March 6, 2015 - 11:49
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Indonesia's rupiah was set to decline for a fourth straight week as the central bank signaled that it will tolerate a weaker currency.

[JAKARTA] Indonesia's rupiah was set to decline for a fourth straight week as the central bank signaled that it will tolerate a weaker currency.

The rupiah reached its lowest level since 1998 on Thursday as Bank Indonesia's Senior Deputy Governor Mirza Adityaswara said an undervalued exchange rate can help exports of manufactured goods, and the nation needs to reduce imports. He said the country's current-account deficit will likely be at 3 per cent to 3.1 per cent of gross domestic product this year, from 2.95 per cent in 2014. The government is seeking to boost economic growth to 5.7 per cent in 2015, from a five-year low of 5.02 per cent last year.

The currency fell 0.5 percent from Feb. 27 to 12,988 a dollar as of 10:02 a.m. on Friday in Jakarta, prices from local banks show. It was steady for the day after reaching 13,030 on Thursday, the weakest since August 1998. One-month non- deliverable forwards were little changed this week and rose 0.1 per cent on Friday to 13,130, data compiled by Bloomberg show.

"The central bank has indicated that it's comfortable with the weaker rupiah," said Nurul Eti Nurbaeti, head of treasury research at PT Bank Negara Indonesia. "This is a way to address the current account even as the economy shifts its focus to growth after the high interest-rate environment." Bank Indonesia Governor Agus Martowardojo said Feb 27 that he sees further currency depreciation as improvements in the US economy boost the dollar. The central bank cut its benchmark rate for the first time in three years on Feb 17.

One-month implied volatility, a measure of exchange-rate swings used to price options, jumped 39 basis points, or 0.39 percentage point, this week to 11.98 per cent, data compiled by Bloomberg show. Bank Indonesia will always be in the market to reduce volatility, Mr Martowardojo said Thursday.

The nation's government bonds due September 2025 were set for the first weekly drop in three, with the yield climbing 33 basis points to 7.40 per cent, the highest since Feb 16, according to the Inter Dealer Market Association.

BLOOMBERG