(Updates with details, comment)
JAKARTA Feb 6 Indonesia's central bank urged
local commercial banks on Wednesday to use the onshore market as
their benchmark for forward rupiah, reminding them that they
were banned from trading in offshore rupiah non-deliverable
Bank Indonesia said it was coordinating with peers in
Southeast Asia about problems in settling NDF rates, after a
source told Reuters that internal reviews by banks in Singapore
found evidence traders colluded to manipulate such rates.
"NDF is not allowed because the transaction doesn't have
underlying assets...This letter (to be sent to banks) is to
reiterate, reminding the banks to not use NDFs," said Bank
Indonesia spokesman Difi Johansyah.
NDFs are derivatives that let companies and investors hedge
or speculate on emerging market currencies when exchange
controls make it difficult for foreigners to participate
directly in the spot market.
The contracts are settled in dollars, so there is no
exchange of the underlying currency, but they can affect spot
The issue comes at a particularly sensitive time for Bank
Indonesia which has trying to prop up a weakening spot rupiah
market in recent months.
"We endorse banks to use the local forward rate...We want
the forward onshore market to be more liquid in the future so
that it can be a benchmark," Johansyah said.
The Singapore bank probes found evidence showing that
traders from several banks communicated with each other over
electronic messaging about what rates they were going to submit
for the local banking association's fixings for NDFs, aiming to
benefit their trading books, the source said.
Bank Indonesia will set guidelines for banks to set exchange
rate quotes as a benchmark for the futures market, said deputy
central bank governor Halim Alamsyah, in charge of bank
regulation and supervision.
"We are in coordination with the Southeast Asia region,"
The spot rupiah rate has fallen 0.7 percent so far this year
to 9,695 per U.S. dollar, after sliding around six percent last
year to be emerging Asia's worst performer. One month
dollar/rupiah NDF rates have been even lower in
recent weeks as investors worry about the country's trade
With heavy foreign ownership of both the Indonesian bond
market and stocks, the central bank is
worried about the risk of sharper falls in the rupiah.
"There are indication that some banks in Indonesia are
involved in NDFs," said a Jakarta-based trader. "It should be
banks that have lines with offshore banks," said the trader.
(Reporting by Adriana Nina Kusuma and Rieka Rahadiana in
Jakarta and Jong Woo Cheon in Singapore; Writing by Neil
Chatterjee; Editing by Sanjeev Miglani)