Indonesian Rupiah Little Changed as Consumer Prices Increase

Indonesia’s rupiah was little changed after trading near a one-month high, as a government report showed inflation accelerated to the fastest pace in 20 months, spurring speculation the central bank will raise borrowing costs this year.

Consumer prices rose 6.96 percent in December from a year earlier, from a 6.33 percent gain in November, the central bureau of Statistics said in Jakarta today. That was more than the 6.71 percent median forecast in a Bloomberg survey of 14 economists.

Indonesia’s core inflation, which excludes food and energy prices, will quicken to 5 percent by the second half of the year, said Enrico Tanuwidjaja, an economist at OSK-DMG Group in Singapore. The measure slowed slightly to 4.28 percent in December from 4.31 percent the previous month.

“Inflation is something to be concerned about,” Tanuwidjaja said. Bank Indonesia Deputy Governor Hartadi Sarwono said Dec. 22 the central bank “won’t hesitate” to raise the benchmark interest rate if core inflation exceeds 5 percent. “We think that might happen in the second half of this year,” Tanuwidjaja said.

The rupiah was little changed at 8,983 per dollar as of 4:09 p.m. in Jakarta, compared with 8,978 on Dec. 31, according to data compiled by Bloomberg. The currency appreciated 4.6 percent last year, adding to a gain of 16.1 percent in 2009.

Bank Indonesia kept its benchmark rate at 6.5 percent all of last year even as Asian nations from Malaysia to India boosted borrowing costs, delaying an increase that could attract more funds at a time when emerging markets are luring investors away from developed economies. Still, the country may raise rates by half a percentage point this quarter, according to economists at Morgan Stanley.

The central bank on Dec. 29 tightened rules on banks’ foreign-exchange holdings and overseas borrowing, seeking to reduce pressure on inflation and the rupiah from capital inflows. Banks must set aside 5 percent of their total foreign-exchange holdings as reserves as of March 2011, from 1 percent currently, and limit short-term overseas borrowing to 30 percent of their capital from next month.

The yield on benchmark 11 percent note due in November 2020 fell 11 basis points to 7.5 percent, according to closing prices provided by the Inter-Dealer Market Association. The rate reached 7.02 percent on Oct. 14, the lowest level since the debt was sold in May 2005.

Foreigners boosted their holdings of Indonesian government debt by 81 percent to 195.3 trillion rupiah ($21.8 billion) as of Dec. 30, finance ministry data shows.

To contact the reporter on this story: Suryani Omar in Jakarta at somar6@bloomberg.net; Khalid Qayum in Singapore at kqayum@bloomberg.net.

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

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