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Indonesia urges Asean banks to fight forex collusion
Publication Date : 31-01-2013
Bank Indonesia (BI) has called on other central banks in Southeast Asia to jointly fight the manipulation of the offshore foreign exchange (forex) market, following reports of collusion practices allegedly performed by currency traders in Singapore.
Collusion among foreign-based banks that aims to weaken the rupiah had been identified by the central bank “a long time ago”, BI spokesperson Difi Johansyah said in Jakarta on Wednesday. However, the central bank could not take any action since such practices occurred offshore, outside its jurisdiction.
“We must respect laws governing other countries and since such practices occur overseas, the only way to eradicate them is to cooperate with other central banks not only in Singapore, but also in the Asean region,” Difi said.
Internal reviews by banks in Singapore have found evidence that traders from several banks colluded to set non-deliverable forwards (NDFs) for emerging market currencies at certain levels, Reuters reported earlier this week.
NDFs are derivatives that let companies and investors hedge or speculate on emerging market currencies when exchange controls make it difficult for foreigners to participate directly in the spot market. The contracts are settled in dollars, so there is no change in the underlying currency, but spot exchange rates can be affected.
Reuters said that the Monetary Authority of Singapore had ordered those banks that helped set local interbank lending rates and NDF rates to review the fixing process, as US and British regulators cracked down on the manipulation of the London interbank offered rate (Libor) benchmark to set interest rates for about US$600 worth of securities.
The probe in Singapore found evidence showing that traders from several banks there had communicated with each other over electronic messaging in deciding their respective NDF rates, aiming to benefit each others’ trading books.
The report said that there were 18 banks involved in determining the NDF rate for the rupiah, as compared to 15 banks for the Malaysian ringgit and 12 for the Vietnamese dong.
This may explain the recent widening gap of rupiah quotes in local and offshore banks. On January 11, the difference between rupiah quotes within Indonesia and those outside reached 2.6 per cent, the widest since Sept 22, 2011, according to data from Bloomberg.
Such a “two-tiered market” for the rupiah might prompt companies or even individuals to hoard dollars and other foreign currencies, analysts at HSBC Holdings plc, led by Paul Mackel, wrote in a research note.
On Wednesday, the rupiah’s one-month NDF rose 0.1 per cent to 9,818 per dollar. That is 1 per cent cheaper than the spot rate, which fell 0.4 per cent to 9,715 as of 9.22am in Jakarta.
The rupiah was the worst-performing currency in 2012, having depreciated 5.9 per cent throughout last year. The depreciation was caused not only by fundamental reasons, but also by the practice of NDF manipulation that had helped build a bearish perception of the rupiah, analysts have said.
“Yes, we have been experiencing a trade deficit that has put pressure on our currency. Nevertheless, I think the recent rapid depreciation of the rupiah is also caused by speculative attacks [stemming from NDF manipulation],” Samuel Sekuritas economist Lana Soelistioningsih said yesterday.
She argued that the NDF had an influential role in swinging a currency one way or another. Market players were apparently trying to gain profits by weakening the rupiah above its “safe resistance level”, which stood at 9,980 against the US dollar, according to a study from Samuel Sekuritas.