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Indonesian Bonds Rise on Central Bank Purchases; Rupiah Gains

Indonesia’s 10-year government bonds extended last week’s advance on speculation the central bank was buying the debt to hold down borrowing costs. The rupiah rose.

The yield fell to a three-week low as Perry Warjiyo, the central bank’s director of economic research and monetary policy, said Bank Indonesia will weigh the impact of a November interest-rate cut on capital flows during a monthly policy meeting being held this week. Economists in a Bloomberg News survey forecast the central bank will keep its benchmark interest rate at 6 percent on Dec. 8. Policy makers lowered the reference rate by 75 basis points since the start of October.

“The increasing bond price in the last one week is supported by Bank Indonesia and local banks,” said Handy Yunianto, a fixed-income analyst at Mandiri Sekuritas in Jakarta. “There is very good communication between BI and the government. We learned a lot from the 2008 crisis.”

The yield on the 8.25 percent notes due July 2021 fell nine basis points, or 0.09 percentage point, to 6.19 percent in Jakarta, according to closing prices from the Inter Dealer Market Association. That was the lowest level since Nov. 14. The rate dropped 54 basis points last week.

The rupiah appreciated 0.2 percent to 9,035 per dollar, according to prices from local banks compiled by Bloomberg.

“If we look at it from the point of view of slowing inflation, of course there’s still room to cut interest rates further,” Warjiyo told reporters in Jakarta today. “But the problem is that the decision on interest rates isn’t dependent only on inflation, but also from the point of view of its impact on capital outflows.”

The monetary authority is committed to buying government bonds in the secondary market, Warjiyo said on Nov. 29. The central bank plans to boost “intervention” to support the rupiah, Governor Darmin Nasution said Nov. 30, a day after the currency sank to a 17-month low of 9,240 per dollar. Indonesia’s inflation rate dropped to a 19-month low of 4.15 percent in November, the government reported Dec. 1.

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