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)