Singapore decides to be hands off NDF rupiah market
Singapore decides to be hands off NDF rupiah market
SINGAPORE (Dow Jones): The Monetary Authority of Singapore Monday said it hasn't discussed the subject of non-deliverable forward trading in the rupiah in Singapore with its Indonesian counterpart, Bank Indonesia.
In a statement to Dow Jones Newswires, a MAS spokesperson said: "NDF markets develop in response to demand for a means of hedging foreign exchange exposure arising from investments in a country and normal trading activities. The Monetary Authority of Singapore neither controls nor prohibits foreign exchange activities, including trading of NDFs, of financial institutions."
The MAS spokesperson said Singapore is a major financial center where international banks and other financial institutions carry out foreign currency trading - including trading of NDFs - just like in New York, London, Hong Kong and Tokyo.
Earlier Monday, The Jakarta Post newspaper quoted an unnamed source at Bank Indonesia as saying the MAS "won't approve" trading in rupiah NDFs by Singapore-based banks.
The Indonesian newspaper also quoted the unnamed source as saying that Bank Indonesia would be "highly upset" if the Monetary Authority of Singapore were to allow the banks to trade in rupiah NDFs.
Bank Indonesia Governor Sjahril Sabirin and his deputy Miranda Gultom have publicly said they can't stop rupiah NDF trading.
Trading in rupiah NDFs got off to a slow, cautious start among major international banks in Singapore Monday amid fears of a potential backlash from the Indonesian central bank.
David Chang, the president of Jakarta-based PT Vickers Ballas Tamara securities company, said that it was a good thing that the central bank tried to lobby MAS not allow the Rupiah NDF trading.
"There is a good chance that the Indonesian government can make a good case (before Singapore)," he told the Poston Monday.
Chang said that MAS might then decide not to approve the NDF market to help reduce speculative trading on the rupiah. But he added that if Singapore failed to initiate the NDF market, then Hong Kong might go ahead and create one.
He said Hong Kong banks would take over Singapore's NDF market for the rupiah, given speculators high interest in the currency.
A local dealer warned that trading at the NDF market would quickly surge, on signs that MAS or the International Monetary Fund might approve it.
She said the local market here traded the rupiah at a tight range on NDF's debut.
The currency ended flat at 9,610 against the U.S dollar.
Singapore-based dealers noted only a few trades were done in the direct interbank market in the morning, before trading interest waned in the afternoon as dealers awaited the MAS's response to Post report.
The relatively calm political situation in Indonesia also provided little incentive to trade, they said.
The new market, beyond Bank Indonesia's jurisdiction because settlement would be in dollars, allows arbitrageurs to capitalize on discrepancies in NDF and onshore rates.
Currency watchers said this could put the rupiah in a dangerous position given the smoldering social and political problems in Indonesia.
But the rupiah remained unaffected Monday, with scant trading interest in the NDF market.
"We took advantage of some arbitrage opportunity today, but on a very small amount," said a dealer at a European bank.
The six-month tenor was traded around Rp 10,200 against the dollar, with the size estimated to be around $3 million, the dealer added.
The three-month tenor was quoted around Rp 9,680-Rp 9,730, reflecting the rupiah's value in the spot market, where the dollar was trading around Rp 9,600.
Some dealers attributed the NDF market's quiet debut to fears that the Indonesian central bank could make things difficult for their branches in Jakarta.
Bankers began discussing a non-deliverable currency forward market to replace spot rupiah trading shortly after Bank Indonesia announced Jan. 15 that it would deny speculators access to funding for short rupiah positions. As a result of the central bank's regulations, banks outside Indonesia can no longer buy or sell rupiah among themselves.
"A lot of people don't want to be seen as a major player because they fear being blacklisted by Bank Indonesia," said a foreign bank dealer. "Nobody wants to be seen as the aggressor on the first day of trading."
Other dealers said the wide bid/offer spreads of up to 100 rupiah quoted by leading market-makers had deterred many other banks from jumping onto the bandwagon. (bkm)