NDF New Reference Will Help Rupiah

JAKARTA. Tomorrow (27/3), Singapore's financial markets will discontinue the use of the price of USD/IDR ​​(IDRVWAP) as a benchmark in the non-deliverable forward (NDF) market.  Instead, the NDF market will use the Jakarta Interbank Dollar Spot Rate (Jisdor) compiled by Bank Indonesia (BI) as a reference for transaction.

NDF are derivative instruments in the foreign exchange market that is similar to the gambling tools. Simply put, NDF market is a betting the market like a casino. The players in the NDF guess about the direction of a currency in the future. Because of the extent guesswork, there isn’t transfer of cash.

That is why, some economists believe, the reference changes could be positive for the rupiah since it will curb the action of speculators. David Sumual, Economist at Bank Central Asia Tbk (BCA) said, the transfer of reference to use Jisdor could reflect the movement of real dollars in the NDF market.

 This method is expected to keep the volatility of the rupiah. "The use of Jisdor is fairer because it uses a rate that has occurred in the country," David said, yesterday.

According to David, since the plan was announced on 19 February, the foreign market participants began using Jisdor as a reference rate. David said, the difference (spread) rate USD/IDR is increasingly thin between the NDF market and Jisdor. "The size of the spread is clear indication that foreign investors begin using Jisdor," he said.

Lana Soelistianingsih, Samuel Asset Management economist, said, rupiah is more stable now. The uses of Jisdor make transactions more transparent and positive for the rupiah. Lana optimistic, the uses of Jisdor will narrow the room for speculators.

But, there is still homework that must be completed with respect to meet the needs of large amounts of US dollars for domestic companies. The solution, Lana said, BI can control the purchase of dollars by domestic companies.

But, currency expert Farial Anwar said, the transfer of reference is not automatically reduce the fluctuation of the rupiah. "This can only be achieved by eliminating the NDF market. Even though spreads narrowed, there is stiil room for speculation," he said.

Apart from that, Farial said, the outlook of rupiah is quite good this year. In addition to macro condition is improving, the domestic market was in need of a lot of dollars for the elections. “I predict, if the central bank does not intervene, USD/IDR could reach below Rp 11.000/US dollar," he predicted.

Meanwhile, Lana predicted, rupiah exchange rate could reach Rp 11.200-11.450 at the end of the first half of 2014. By the end of the year, the rupiah could rise to Rp 1.0500-10.800/dollar.