Rupiah Drops to Two-Week Low as Floods Seen Boosting Inflation

Indonesia’s rupiah fell to the lowest level in almost two weeks amid concern the central bank will keep borrowing costs unchanged even as its expects flooding to spur inflation.

Consumer-price gains may be around or slightly more than 1 percent in January from the previous month as floods disrupt supply, Dody Budi Waluyo, Bank Indonesia’s executive director for monetary policy, said Jan. 21. That would be the fastest pace since August. The authority held its benchmark interest rate at 7.5 percent for a second straight month on Jan. 9.

The rupiah weakened 0.2 percent to 12,168 per dollar as of 10:04 a.m. in Jakarta, prices from local banks show. It reached 12,175 earlier, the lowest level since Jan. 10. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 37 basis points, or 0.37 percentage point, to 11.27 percent, the lowest since Aug. 16, according to data compiled by Bloomberg.

“The rupiah is less volatile due to inflows, but demand for dollars in the onshore market persists,” said Irene Cheung, foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “There seems to be increased inflationary pressure on a month-on-month basis. It’s a concern because there needs to be monetary action on it.”

In the offshore market, one-month non-deliverable forwards slid 0.7 percent to 12,180 per dollar, 0.1 percent weaker than the onshore spot rate, data compiled by Bloomberg show. A fixing used to settle the contracts was set at 12,011 per dollar yesterday by the Association of Banks in Singapore. Today’s rate will be posted at 10:30 a.m. in Jakarta.

Overseas funds added 5.49 trillion rupiah ($451 million) to local-currency debt holdings this year through Jan. 21 and bought $300.5 million more local stocks than they sold in January through yesterday, official data show.

The yield on the 8.375 percent government bonds due March 2024 climbed two basis points to 8.60 percent, the highest level since Jan. 14, according to 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

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