November 13, 2018 / 6:30 AM / 6 months ago

Indonesia holding second auction to boost onshore NDF trade

JAKARTA, Nov 13 (Reuters) - Indonesia’s central bank will auction on Tuesday one-month contracts selling rupiah against the U.S. dollar for a second consecutive day to help build liquidity in a new onshore non-deliverable forward (NDF) market, a senior official told Reuters.

BI allowed banks to start trading a rupiah-settled onshore NDF market on November 1 as it aims to create a parallel market to Singapore’s NDF market, which has often been blamed for speculation against the rupiah.

Market forces will be left to determine the exchange rate, but Bank Indonesia (BI) hopes a liquid and deep domestic NDF market “will indirectly stabilise the rupiah on the spot market,” Nanang Hendarsah, who heads the monetary management department at the central bank, said.

The rupiah has lost 8.8 percent against the dollar since the start of the year and in recent months has plumbed levels unseen for 20 years.

By 0620 GMT on Tuesday, the rupiah had shed 0.34 percent to trade at 14,875 per dollar.

BI gave an indicative target to sell $100 million of NDF contracts at Tuesday’s auction. It sold $73 million of such contracts in its inaugural auction for the instrument a day earlier.

The central bank will decide when to call auctions, and they will not be held regularly, Hendarsah said.

The average trading volume in the onshore NDF market is $90 million, according to BI. Transactions in Singapore’s NDF market are estimated at around $500 million to $700 million.

BI has raised interest rates five times by 150 basis points since May to defend the rupiah. It is scheduled to start a two-day monetary policy meeting on Wednesday and announce its policy decision on Thursday. (Reporting by Gayatri Suroyo; Editing by Simon Cameron-Moore)

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