Rupiah drops to six-year low after central bank signals weakness

Indonesian rupiah banknotes of various denominations. The rupiah dropped to a six-year low after Bank Indonesia signalled it will tolerate a weaker currency to boost exports. -- PHOTO: BLOOMBERG 
Indonesian rupiah banknotes of various denominations. The rupiah dropped to a six-year low after Bank Indonesia signalled it will tolerate a weaker currency to boost exports. -- PHOTO: BLOOMBERG 

JAKARTA (Bloomberg) - The rupiah dropped to a six-year low after Bank Indonesia signalled it will tolerate a weaker currency to boost exports.

The rupiah fell for a second day after central bank governor Agus Martowardojo said Friday he sees further depreciation as improvements in the US economy boost the dollar. The currency's weakness is "beneficial" in lowering imports and improving export competitiveness, according to Feb 17 statement from Bank Indonesia. China, Indonesia's largest trading partner, cut interest rates over the weekend, sending the yuan to a two-year low versus the greenback Monday.

"The remarks go to show that we can expect the rupiah to be weaker going forward," said Mr Saktiandi Supaat, head of foreign-exchange research at Malayan Banking in Singapore. "Regional currencies are closely correlated with the yuan, as should be expected, so the rate cut will weigh on the market."

The rupiah declined 0.5 per cent to 12,994 a dollar as of 9.14am in Jakarta, prices from local banks show. It fell to 13,000 earlier, the lowest level since November 2008. One-month non-deliverable forwards dropped 0.1 per cent to 13,141, data compiled by Bloomberg shows.

One-month implied volatility in the rupiah, a measure of exchange-rate swings used in pricing options, rose 30 basis points to 11.89 per cent. That adds to Friday's 52 basis-point advance, making it the biggest two-day gain of the year.