November 1, 2018 / 11:03 AM / 10 months ago

Indonesia pleased with first onshore NDF trading day

JAKARTA, Nov 1 (Reuters) - Indonesia’s central bank said the first day of trading of domestic non-deliverable forwards in rupiah went well and showed signs that there was genuine demand for the market, officials said on Thursday.

Ten banks transacted a total volume of $80 million on Thursday, Nanang Hendarsah, Bank Indonesia’s (BI) head of monetary management, told Reuters, saying the volume was “as expected for a market that is in its infancy”.

BI announced in September that it wanted to create a parallel market to Singapore’s NDF market, which has often been blamed for speculation against the rupiah.

The rupiah has been under pressure this year as investors have dumped emerging market assets due to rising U.S. interest rates and the Sino-U.S. trade war.

To support the currency, BI has raised interest rates five times this year and spent billions of dollars in intervention.

The onshore NDF is intended as an alternative hedging instrument for business and foreign investors as the rupiah falls, but analysts have doubted whether it would be a success as BI requires each transaction to be backed by genuine underlying transactions, unlike in Singapore’s market.

Transactions in Singapore’s NDF market are estimated at around $500 million to $700 million.

But Hendarsah said early indications showed there is real demand. “Interbank quotations were very active and the bids and offers were balanced,” he said, adding that there were 22 deals done on Thursday.

The forward rate of 1-month and 3-month rupiah in the onshore market traded close to Singapore’s contracts of the same maturity .

The exchange rate for one month forward contract of rupiah in onshore NDF closed at 15,170 a dollar, while in Singapore it was 15,145.

In the spot market, the rupiah touched 15,114 to the dollar, its strongest in a month, before closing at 15,125, amid broader strengthening trend in Asian currencies due to China’s plans to boost its economy.

BI Governor Perry Warjiyo praised the onshore NDF’s price discovery and said it helped the rupiah gain ground.

“We are sure that the more active (domestic) transactions are, the more positive the impact is for the rupiah’s stability,” he said.

Reporting by Gayatri Suroyo; editing by Simon Cameron-Moore

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