Rupiah Approaches Two-Month Low Before Fuel-Subsidy Vote

Indonesia’s rupiah rose the most in more than a week, reversing an earlier drop, on speculation the central bank sought a stronger currency to curb inflation. Government bonds fell.

Bank Indonesia will intervene in the currency and bond markets to stabilize the rupiah, it said on its website on March 8. About 2,500 demonstrators gathered outside the presidential palace and parliament in Jakarta today to protest the government’s proposal for a 33 percent increase in fuel prices. Inflation (IDCPIY) may accelerate to 6.8 percent from February’s 3.56 percent if the fuel-price increase is implemented, central bank Governor Darmin Nasution said this month.

“Bank Indonesia is still in the market to protect the rupiah,” said Rully Nova, a foreign-exchange analyst at PT Bank Himpunan Saudara in Jakarta. “A stronger rupiah will help curb inflation when fuel prices increase in April.”

The rupiah advanced 0.3 percent to 9,165 per dollar as of 4:54 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency has dropped 1.3 percent this quarter and touched 9,225 on March 23, the weakest level since Jan. 12. One-month implied volatility in the rupiah, which measures exchange-rate swings used to price options, was unchanged today at 8.25 percent.

Lawmakers have delayed a vote on the proposed reduction in energy subsidies, which was scheduled for today, and were debating whether to revoke a law that requires parliamentary approval for any increase in fuel prices, Tamsil Linrung, deputy chairman of the budget committee, said yesterday.

Funds Sell Bonds

Maintaining subsidies may hurt Indonesia’s growth by causing the fiscal deficit to exceed the legal limit of 3 percent of gross domestic product, National Economic Committee Vice Chairman M. Chatib Basri said in an interview with Bloomberg Television in Hong Kong on March 23.

Overseas funds cut holdings of Indonesian sovereign bonds by 10.57 trillion rupiah ($1.1 billion) since Jan. 31 amid concern about faster inflation. Foreign ownership of the securities stood at 225.4 trillion rupiah as of March 26, data from the Ministry of Finance show.

The yield on the 7 percent bond due May 2022 increased one basis point, or 0.01 percentage point, to 5.93 percent, according to final prices from the Inter Dealer Market Association.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

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

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