Indonesian Rupiah, 10-Year Bonds Gain After Surprise Interest Rate Rise

Indonesia’s rupiah climbed to a four- week high after the central bank unexpectedly raised interest rates for the first time in more than two years, to help contain inflation. The government’s benchmark 10-year bonds advanced.

Bank Indonesia increased its reference rate to 6.75 percent from a record-low 6.5 percent, Deputy Governor Halim Alamsyah told reporters in Jakarta today. The move was predicted by six of 22 economists surveyed by Bloomberg before the announcement, with the rest having forecast no change. Consumer prices in Southeast Asia’s biggest economy rose 7.02 percent from a year earlier in January, the most in 21 months, data showed this week.

“It’s a good move to prevent inflation from going too far,” said Mika Martumpal, a senior market analyst at PT Bank Commonwealth in Jakarta. “This will bode well for investors because it signals that the central bank is serious about fighting inflation.”

The rupiah rose 0.4 percent to 8,993 per dollar as of 4:40 p.m. in Jakarta, from 9,025 when local financial markets were last open on Feb. 2, according to data compiled by Bloomberg. The currency strengthened to as much as 8,990, the highest since Jan. 6. The rupiah gained 0.4 percent this week. Indonesia’s markets were closed yesterday for a public holiday.

Ten-year government debt gained. The yield on the 8.25 percent bond due July 2021 fell one basis point to 8.91 percent, according to closing prices from the Inter Dealer Market Association. Two-year government bonds declined. The yield on the 11 percent note due December 2012 climbed 33 basis points to 7.65 percent, the biggest one-day rise since Jan. 25. A basis point is 0.01 percentage point.

“We don’t expect a sustained rally in bond yields yet, as investors are still uncertain about whether inflation has peaked ,” said Helmi Arman, a bond strategist at PT Bank Danamon Indonesia in Jakarta.

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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