Rupiah Drops to Four-Month Low as Central Bank Helps Exports

Indonesia’s rupiah fell to the lowest level since February after the central bank said it will allow weakness in the currency to help exports.

Bank Indonesia is letting the rupiah be temporarily “undervalued” to improve the competitiveness of the nation’s shipments and to reduce imports, Senior Deputy Governor Mirza Adityaswara said in Jakarta yesterday. The trade shortfall widened to $1.96 billion in April, the largest since July last year. That weighs on the current-account deficit, which is set to expand this quarter from the 2.06 percent of gross domestic product recorded in the first three months of the year.

The currency fell 0.5 percent to 12,043 per dollar as of 9:44 a.m. in Jakarta, prices from local banks show. It reached 12,048 earlier, the lowest level since Feb. 13. In the offshore market, one-month non-deliverable forwards declined 0.5 percent to 12,106, trading 0.5 percent weaker than the onshore spot rate, data compiled by Bloomberg show.

Spending typically rises during the Muslim fasting month of Ramadan, which will start in late June, while Indonesians head to polls on July 9 to choose a president. Oil prices have climbed this month as militants captured territory in Iraq, the Organization of the Petroleum Exporting Countries’ second-largest producer.

The rupiah’s one-month implied volatility, a measure of expected swings in the exchange rate used to price options, rose five basis points to 9.99 percent. Bank Indonesia set a fixing used to settle rupiah forwards at 23,027 per dollar today, from 12,000 yesterday.

The government’s 8.375 percent bonds due March 2024 declined for the fourth straight day, pushing the yield one basis point, or 0.01 percentage point, higher to 8.20 percent, according to the Inter Dealer Market Association. That’s the highest level since March 26