Indonesian Bonds Advance After Central Bank Signals Lower Rates

Nov. 8 (Bloomberg) -- Indonesia’s three-year government bonds rose for a third day after the central bank signaled the nation’s borrowing costs are headed lower.

Bank Indonesia sees room to cut its benchmark rate, Deputy Governor Hartadi Sarwono said today, without providing a timeframe. Nine of 16 analysts in a Bloomberg survey predict that policy makers will hold the reference rate at 6.50 percent on Nov. 10, while seven expect a 25-basis point cut. Consumer prices rose 4.42 percent in October from a year earlier, compared with 4.61 percent in September, data showed last week.

“I still believe that BI will cut another 25 basis points either this Thursday or in December,” said Bambang Eko Joewono, the Jakarta-based head of the global-markets division at PT Bank UOB Indonesia. “Inflation is quite low.”

The yield on the 11 percent bonds due October 2014 fell 3.5 basis points, or 0.035 percentage point, to 5.48 percent, according to closing prices from the Inter-Dealer Market Association.

The rupiah strengthened 0.4 percent to 8,920 per dollar in Jakarta, according to prices from local banks compiled by Bloomberg. The central bank said in September that it would intervene in the currency market to support the rupiah.

“The rupiah is relatively stable because Bank Indonesia is still in the market,” said Rully Nova, a foreign-exchange analyst at PT Bank Himpunan Saudara in Jakarta. The currency may trade between 8,850 and 8,950 this week, he said.

The economy will likely expand 6.5 percent this year and inflation may slow to 4.2 percent in 2011, Sarwono said. Gross domestic product rose 6.54 percent in the three months through September from a year earlier, compared with a revised 6.52 percent in the second quarter, the Central Bureau of Statistics said yesterday.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net