Rupiah Falls Most in a Week, Bonds Decline on Inflation Concern

Indonesia’s rupiah declined by the most in a week and government bonds fell amid concern inflation will quicken from a 22-month high after the central bank indicated a reluctance to raise interest rates.

Consumer prices gained 5.9 percent from a year earlier in March, exceeding Bank Indonesia’s 2013 inflation target of 3.5 percent to 5.5 percent, official figures show. Even with March’s increase slightly exceeding Bank Indonesia’s goal, raising the benchmark interest rate isn’t easy, Governor Darmin Nasution said in Jakarta on April 5. Core consumer prices, which exclude food and energy costs, climbed 4.21 percent last month, the least since September.

“The rupiah’s trend is toward weakening as investors are growing more concerned over inflation,” said Fahrudin Haris Prastowo, foreign-exchange trader at PT Bank Rakyat Indonesia. “The central bank is unlikely to tighten in response as core inflation, an indicator for money supply, is still low.”

The rupiah fell 0.2 percent to 9,759 per dollar as of 10:12 a.m. in Jakarta, the biggest loss since April 1, prices from local banks compiled by Bloomberg show. It traded at a 0.4 percent premium to its one-month non-deliverable forwards, which slid 0.1 percent to 9,798, data compiled by Bloomberg show.

A daily fixing used to settle the derivatives was set at 9,756 on April 5 by the Association of Banks in Singapore, from 9,752 the previous day. Today’s price will be published at 11:30 a.m. in the city-state. One-month implied volatility for the rupiah, a measure of expected moves in the exchange rate used to price options, fell eight basis points, or 0.08 percentage point, to 5.94 percent.

Bond Outflows

Global funds sold 3.99 trillion rupiah ($409 million) more of Indonesia’s local-currency sovereign debt than they bought since the holdings reached an all-time high of 284.85 trillion rupiah on March 14, finance ministry data show.

The central bank will likely keep the reference rate unchanged at a record-low 5.75 percent for a 14th month when it meets on April 11, according to all 10 economists in a Bloomberg survey. It may narrow the gap between the benchmark rate and the deposit facility rate, or Fasbi, from the current 4 percent, Societe Generale SA strategist Wee-Khoon Chong wrote in a note today.

The yield on the government’s 5.625 percent bonds due May 2023 was up two basis points at 5.59 percent, the highest since March 27, according to prices from the Inter Dealer Market Association.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.