Rupiah Declines as Central Bank Keeps Reference Rate Unchanged

Indonesia’s rupiah retreated from a seven-year high as the central bank kept its key lending rate unchanged for a second month today. Benchmark bonds declined.

Bank Indonesia kept its benchmark reference rate at 6.75 percent, it said in Jakarta today, a decision predicted by all 18 economists surveyed by Bloomberg News after inflation slowed for a second month in March. Consumer prices rose 6.65 percent last month from a year earlier, compared with an increase of 6.84 percent in February, according to official data released April 1. Core inflation, which excludes food and fuel, accelerated to 4.45 percent from 4.36 percent.

“The rate decision was expected after the slower inflation data in March,” said Prakriti Sofat, a Singapore-based economist at Barclays Capital. “However, core inflation continues to rise, and that is something investors remain concerned about. We’re expecting two more rate hikes this year; one in June and another in the third quarter of the year.”

The rupiah fell 0.1 percent to 8,663 per dollar as of 5:17 p.m. in Jakarta, according to data compiled by Bloomberg. The currency touched 8,637 yesterday, the strongest level since April 28, 2004.

The currency’s appreciation may continue this year, Bank Indonesia Governor Darmin Nasution told reporters in Jakarta today. Still, the central bank wants to ensure the currency won’t strengthen too fast, Deputy Governor Hartadi Sarwono said at the same briefing.

“Our sense is that we are probably nearing the bottom for dollar-rupiah,” Sofat said.

Ten-year government bonds slipped. The yield on the 8.25 percent note due July 2021 rose three basis points to 7.73 percent, according to closing prices from the Inter-Dealer Market Association. A basis point is 0.01 percentage point.

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

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

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