Rupiah Hits Three-Week High on Europe Progress, Trade Optimism

The rupiah rose to the highest level in almost three weeks after members of the euro area agreed on measures to tackle the debt crisis, supporting riskier assets before data today that’s forecast to show Indonesia’s trade balance swung to a surplus.

European leaders agreed to relax conditions on bailout funds for Spanish banks and possible aid for Italy at a two-day summit that concluded June 29 in Brussels. Indonesia’s trade balance swung to a $311 million surplus in May from an April deficit of $641 million, according to the median estimate of economists surveyed by Bloomberg before figures are released at 11 a.m. in Jakarta. A separate report at that time is forecast to show consumer prices gained 4.38 percent in June from a year earlier after increasing 4.45 percent in May.

“The very positive sentiment from Friday pushed regional markets higher and in turn led the rupiah higher,” said Artanavaro Gasali, the Jakarta-based head of global markets at PT Bank ICBC Indonesia. “The rupiah will have some support as foreign investors reenter Indonesia’s capital market. Inflation is expected to be moderate and the reference rate on hold.”

The rupiah strengthened 0.4 percent to 9,395 per dollar as of 9:21 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency touched 9,363, the strongest level since June 12.

One-month implied volatility, which measures exchange-rate swings used to price options, held at 8.5 percent today.

“Inflation is not going to be a problem for the next few quarters,” as the threat of a global economic slowdown damps the price of oil and Bank Indonesia takes steps to restrict credit growth, analysts at DBS Group Holdings Ltd. led by David Carbon wrote in a report today.

The yield on the government’s benchmark 10-year bonds fell five basis points, or 0.05 percentage point, last week to 6.15 percent, according to data compiled by Bloomberg.

To contact the reporter on this story: Yudith Ho in Jakarta at yho35@bloomberg.net.

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

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