Indonesia 10-Year Yield Rises to 27-Month High on Rate Outlook

Indonesia’s bonds fell, pushing the 10-year yield to the highest since March 2011, on speculation the central bank will raise borrowing costs for a second month. The rupiah dropped to the weakest level since September 2009.

Bank Indonesia will increase its reference rate to 6.25 percent tomorrow, from 6 percent, according to 11 of 15 analysts surveyed by Bloomberg. Two predict no change, while two forecast a 50 basis point boost. Foreign-currency reserves fell to $98.1 billion in June, the least in more than two years, official data show, reducing the central bank’s scope to support the currency by intervention. Indonesia raised fuel prices last month, which is expected to spur consumer prices in July,

“There will be more spikes in inflation in the coming months, particularly in July, which could add to their impetus to hike more aggressively,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “The forex reserves data could be seen more as a concern that adds more currency weakness.” Nomura is forecasting a 50 basis point increase in the reference rate.

The yield on the 5.625 percent government bonds due May 2023 climbed one basis point, or 0.01 percentage point, to 8 percent as of 9:37 a.m. in Jakarta, according to prices from the Inter Dealer Market Association. It touched 8.01 percent earlier, the highest level since March 2011, and has risen 87 basis points this month.

Consumer prices gained 5.9 percent last month, compared with 5.47 percent in May, official data show. That exceeds the central bank’s target for 3.5 percent to 5.5 percent this year.

The rupiah declined 0.1 percent to 9,963 per dollar after touching 9,966, weakest level since September 2009, prices from local banks show. The currency will trade at 9,950 at year-end, Paracuelles said. It is at a 2.2 percent premium to the one-month non-deliverable forwards, which gained 0.3 percent to 10,183, data compiled by Bloomberg show.

One-month implied volatility for the rupiah, a measure of expected moves in the exchange rate used to price options, dropped 28 basis points to 13.04 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: James Regan at jregan19@bloomberg.net

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