Banks in Asia are concerned that recent regulatory changes in Indonesia could sound a death-knell for the offshore cross-currency interest-rate swap market. The central bank banned the offshore trading of the Indonesian rupiah just over a week ago, apparently in a bid to protect the currency from attacks. The impact of the move on Indian-rupiah cross-currency interest-rate swaps between offshore counterparties was unclear. Some banks began to prepare for the worst, with many believing they may have to unwind all such swaps. J.P. Morgan Chase, a major player in the offshore market, is believed to have some 4,000 outstanding contracts that stand to be affected. Officials at the bank in Jakarta declined comment.
The central bank had planned to meet last Monday with visiting Singapore-based banks to clarify the new rules and discuss concerns with how they would affect the spot and derivatives market. That meeting was canceled, and although a circular was expected as DW went to press Thursday, the meeting has not been rescheduled. Traders are hoping that they will not have to unwind outstanding positions--and potentially lose money--under the new regulations.
However, the changes could provide extra impetus for banks in Jakarta to speed the development of an onshore floating interest-rate benchmark and therefore a liquid onshore market, said a marketer in Jakarta. "Hedging is still needing to be done, which means that the onshore market does have to speed up in the process," he said. He added that a committee of banks in Indonesia had already been formed for this purpose, and that their first meeting is now imminent (DW, 12/24).
