Rupiah Retreats on Inflation Concern, Benchmark Bonds Drop

Indonesia’s rupiah fell, on concern that policy makers are not doing enough to curb price increases, after a rating upgrade failed to boost investor’s confidence. Bonds declined.

The Jakarta Composite Index dropped 0.9 percent to 3,535.73, falling for the first time in four days. Moody’s Investors Service raised the government’s foreign- and local-currency debt ratings, citing the nation’s “economic resilience” and improving public debt position.

“The rating upgrade just confirms the longer term view that improvements in Indonesia’s fundamentals are still ongoing, but it doesn’t erase the mid-term risk associated with higher inflation,” said Helmi Arman, a bond strategist at PT Bank Danamon Indonesia in Jakarta.

The rupiah retreated 0.1 percent to 9,073 per dollar as of 4:16 p.m. in Jakarta, according to data compiled by Bloomberg. The currency has declined 1.1 percent so far this year, after gaining 4.6 percent in 2010.

Inflation Risk

Bank Indonesia is “ready to raise rates at an appropriate time,” Governor Darmin Nasution said late on Jan. 11, without elaborating on when or by how much. The central bank kept its benchmark lending rate at a record low of 6.5 percent for a 17th meeting on Jan. 5, even after inflation in December accelerated to the fastest pace in 20 months.

“Investors are still waiting for real action to be taken,” said Mika Martumpal, a senior market analyst at PT Bank Commonwealth in Jakarta. “As long as these are just statements, they will still be concerned as to how inflation will be managed.”

Foreign funds sold $402.9 million more stocks than they bought last week, according to exchange data. Offshore ownership of Indonesian government bonds fell to 191.89 trillion rupiah ($21.2 billion) as of Jan. 13, from 198.75 trillion on Jan. 7, according to finance ministry data.

Ten-year benchmark bonds fell. The price declined 0.8441 or 8,441 per 1 million rupiah face amount, to 97.7869. The yield on the 8.25 percent security due July 2021 climbed 12 basis points to 8.57 percent, according to closing prices from the Inter Dealer Market Association. A basis point is 0.01 percentage point.