Rupiah Declines Most in Three Weeks After Inflation Accelerates

Indonesia’s rupiah weakened by the most in almost three weeks after a report showed inflation unexpectedly accelerated. Government bonds advanced.

Consumer-price gains were 5.31 percent last month, the fastest pace since June 2011, according to official data published on March 1. That compares with the 4.81 percent median estimate in a Bloomberg survey. The central bank needs to remain alert and monitor future trends, Deputy Governor Hartadi Sarwono said in a mobile-phone text message the same day. Bank Indonesia on Feb. 12 forecast inflation will be in a 3.5 percent to 5.5 percent range this year.

The rupiah declined 0.3 percent to 9,704 per dollar as of 9:12 a.m. in Jakarta, the biggest drop since Feb. 12, prices from local banks compiled by Bloomberg show. It traded at a 0.2 percent premium to the one-month non-deliverable forwards, which were steady at 9,727, data compiled by Bloomberg show.

“The rupiah weakened due to the inflation rate, which is a concern as it erodes purchasing power,” said Fahrudin Haris Prastowo, a foreign-exchange trader at PT Bank Rakyat Indonesia. “Bank Indonesia will likely maintain the reference rate when it meets this week as inflation has not breached its assumption.”

Bank Indonesia will meet on March 7 to decide on its policy rate after it held borrowing costs steady for a 12th month at a record-low 5.75 percent in February.

A daily fixing used to settle rupiah derivatives was set at 9,681 on March 1, from 9,669 the previous day, by the Association of Banks in Singapore. One-month implied volatility in the rupiah, which measures expected moves in the exchange rate used to price options, climbed five basis points, or 0.05 percentage point, to 5.85 percent.

The government’s 5.625 percent bonds due May 2023 snapped four days of losses, prompting the yield to drop one basis point today to 5.37 percent, prices from the Inter Dealer Market Association show.

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

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

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