While volatility in many financial markets has been rising over recent weeks, one notoriously unpredictable currency has been dead in the water.
The trading range for Indonesia’s rupiah shrank to the least in two decades last year and volatility all but vanished as the central bank made maintaining the currency’s stability its chief mission. All this in a year when there were plenty of reasons to be bullish: a narrowing current-account deficit, rising bond inflows and two rating upgrades have helped to cement the turnaround of an economy that was part of Morgan Stanley’s “Fragile Five.”
Bank Indonesia has introduced a range of measures to regulate foreign-exchange transactions involving the rupiah, including a requirement for lenders to have written internal guidelines in conducting hedging transactions. Governor Agus Martowardojo said in November the central bank will continue to intervene to maintain currency stability.
“Bank Indonesia tightened its FX rules before Malaysia, and even before China,” said Andy Ji, Asia currency strategist at Commonwealth Bank of Australia in Singapore. “While short of implementing outright capital-account restrictions, the rules are stringent, which explains the very subdued exchange-rate movement. So in that regard, it does affect investors in terms of inflows.”
The rupiah traded between 13,145 and 13,645 per dollar last year. The range of 500 rupiah compares with 1,065 for 2016 and as much as 11,599 during the Asian financial crisis in 1998.
One-month implied volatility for the dollar-rupiah currency pair dropped to 3.585 in September, the lowest in a decade before ending the year at 4.1950. It was as high as 26.05 in 2011.