Rupiah Rises as Central Bank May Allow Gains to Curb Inflation

Indonesia’s rupiah gained the most in almost two weeks on speculation the central bank will tolerate gains to tackle rising prices.

The rupiah, which has strengthened 3.5 percent this year, is likely to appreciate further in 2011, Bank Indonesia Governor Darmin Nasution said April 12. The Singapore dollar climbed to a record after the central bank yesterday revalued the currency’s trading range to curb inflation.

“The central bank has been open in saying that they will use a stronger currency to fight inflation,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “The underlying sentiment is still for a stronger rupiah.”

The rupiah strengthened 0.3 percent to 8,668 per dollar as of 4:37 p.m. in Jakarta, according to data compiled by Bloomberg. It touched 8,637 on April 11, strongest level in seven years. The currency dropped 0.2 percent this week, the first decline since the five days ended March 11.

Ten-year government bonds fell. The yield on the 8.25 percent note due July 2021 climbed 15 basis points to 7.78 percent, according to closing prices from the Inter-Dealer Market Association. The rate slipped two basis points this week.

China’s government today reported inflation accelerated to 5.4 percent last month, the fastest pace since 2008, while India’s wholesale price index climbed 8.98 percent. The Monetary Authority of Singapore said yesterday it will allow its currency to appreciate further.

“It was seen as a signal that the inflation story is still in the picture for Asia,” Cahyadi said. “That boosted sentiment that other Asian central banks will do more to combat inflation.”

Indonesia kept its benchmark lending rate unchanged at 6.75 percent on April 12. Policy makers raised borrowing costs by 25 basis points in February, the first increase since 2008.

Core inflation, which excludes food and fuel, gained 4.45 percent in March from a year earlier, compared with an increase of 4.36 percent in February, according to government data released on April 1. That was the fastest since October 2009.

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