Rupiah Pares Advance as Korean Tension Deters Risk-Taking

Indonesia’s rupiah pared gains as heightened risk of conflict on the Korean peninsula damped optimism that pickups in manufacturing in the U.S., Europe and China will boost exports. Bonds rose.

The Tokyo Shimbun newspaper said today that North Korea, which shelled a South Korean island last week, may be planning an attack on the South’s mainland within the year. Data yesterday showed manufacturing in the U.S. expanded for a 16th month in November, output in the U.K. grew at the fastest pace in 16 years and that for China gathered pace for a fourth month.

“Previously, concerns about U.S. and European economies sent funds into Asia, but now it is the opposite as the North Korea tensions are pressuring Asian currencies,” said Lindawati Susanto, head of foreign-exchange trading at PT Bank Resona Perdania in Jakarta. “Sentiment is still nervous but getting better.”

The rupiah traded at 9,018 per dollar as of 3:59 p.m. in Jakarta, from 9,023 yesterday, according to data compiled by Bloomberg. It earlier gained as much as 0.3 percent. The currency reached 9,058 in the last two days, the weakest level since July, and touched a three-year high of 8,875 on Nov. 5.

Moody’s Investors Service yesterday put Indonesia’s local- and foreign-currency debt ratings, currently at Ba2, on review for a possible upgrade, citing economic resilience and an improving debt position. It last upgraded the country to two levels below investment grade in September 2009.

Faster Inflation

Consumer prices rose 6.33 percent in November from a year ago after climbing 5.67 percent in October, exceeding the median estimate in a Bloomberg survey for a 5.98 percent rise, data yesterday showed. Inflation in 2010 may “slightly” exceed 6 percent this year and “inflationary pressure” may continue in 2011, Bank Indonesia Governor Darmin Nasution said yesterday.

“The Moody’s news is a good thing and the government is targeting for Indonesia to become investment grade by next year,” Susanto said. “But inflation is high and this will slow the rupiah’s appreciation.”

Benchmark bonds rose on speculation that the central bank will leave policy rates unchanged at its meeting tomorrow. The yield on the 11 percent note due November 2020 slid six basis points to 7.56 percent, according to mid-day prices by Inter- Dealer Market Association. The rate yesterday rose the most in two weeks after data showed that inflation accelerated in November, spurring concern that the central bank may raise policy rates.

Policy makers will keep borrowing costs unchanged at their final rate-setting meeting of the year tomorrow, according to all 20 economists surveyed by Bloomberg News.

To contact the reporter on this story: Patricia Lui in Singapore at plui4@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.

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