BANK Indonesia said it will regulate currency hedging by individuals and companies, including state-owned firms, to help stabilise Asia's most-volatile currency.
The central bank will require Indonesians and corporations to present documents to show underlying economic activity such as international trade, foreign debt and investments, to conduct hedging transactions with lenders, it said yesterday.
The amount and duration of the hedges will be limited by the underlying activity, it said.
"There was previously no framework to guide currency hedging," said Tri Sulistianing Astuti, a foreign-exchange dealer at PT Bank Rakyat Indonesia here.
"With increased awareness, both banks and companies won't be hesitant to provide and take out hedges, which will reduce rupiah volatility as companies can better organise their dollar demand."
The rupiah has fallen 16 per cent against the greenback this year, the most among 24 emerging-market currencies tracked by Bloomberg, as Indonesia's record current-account deficit and signs the United States Federal Reserve was preparing to cut stimulus deterred investors. One-month implied volatility, a measure of expected moves in the exchange rate used to price options more than doubled to 15.73 per cent, the highest in Asia.
"This rule was issued as the regulatory framework for economic players in mitigating market risk amid the dynamics of the domestic foreign-currency market," Bank Indonesia said.
The State-Owned Enterprises Ministry on September 25 said government-held firms can hedge against currency swings. Any gains or losses made from the hedging transactions will be accounted as company profit or cost, said Difi Johansyah, the bank's spokesman.
Spot trading now accounts for an average of 73 per cent of domestic foreign-exchange transactions and for all activity by state-owned firms, Johansyah said.
The monetary authority expects the proportion of swaps and forwards trading to increase following the introduction of the new rules, he said. Bloomberg