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Rupiah Appreciates on Optimism Capital Inflows Will Increase

Indonesia’s rupiah rose from a one-week low on optimism the nation will win a credit-rating upgrade, bolstering demand for the nation’s higher-yielding assets.

The rupiah has gained 4.3 percent this year as funds based abroad bought $2.2 billion more Indonesian shares than they sold, helping drive the benchmark stock index to a record high today. President Susilo Bambang Yudhoyono is targeting annual growth of 6.6 percent on average through the remainder of his term that ends in 2014.

“The tone is still for the rupiah to strengthen,” said Enrico Tanuwidjaja, a Singapore-based economist at OSK-DMG Group. “Next year, we’re looking for an upgrade” in the credit rating, he said.

Indonesia’s currency traded at 9,020 per dollar as of 4:10 p.m. in Jakarta versus 9,023 late yesterday after reaching as high as 9,010, according to data compiled by Bloomberg. The currency reached 8,875 on Nov. 5, the strongest level since June 2007.

The rupiah may trade between 8,980 and 9,050 for the remainder of the year, Tanuwidjaja said.

Standard & Poor’s raised the country’s rating in March to BB, two levels below investment grade, while Moody’s Investors Service on Dec. 1 placed its Ba2 ranking on review for a possible upgrade, citing an improving economy and state finances.

Benchmark 10-year government bonds rose, even as the finance ministry prepares to sell more debt next week.

The yield on the 11 percent note due November 2020 fell six basis points, or 0.06 percentage points, to 7.37 percent, according to the Inter Dealer Market Association.

The government will auction 2 trillion rupiah ($222 million) of bonds and bills on Dec. 14, the debt management office said in a statement on its website.

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