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Rupiah, Bonds Gain as Fitch Upgrades Rating to Investment Grade

Indonesia’s rupiah had its first weekly gain since October after Fitch Ratings upgraded the country to investment grade, fueling optimism foreign funds will add to their holdings of the nation’s debt. Bonds advanced.

Fitch raised Indonesia’s rating by one level to BBB- late yesterday, citing strong economic growth and declining public debt. Overseas investors have increased their holdings of local bonds by 4.2 percent so far this month. The benchmark stock index rallied 1.8 percent today, the most since Nov. 4.

“It’s a positive development that helps build sentiment and should make the rupiah stronger,” said Enrico Tanuwidjaja, a currency strategist in Singapore at Malayan Banking Bhd. “The country will now attract a broader range of investors, giving the government and corporates more funding sources.”

The rupiah gained 0.5 percent this week to 9,035 per dollar as of 4:05 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency rose 0.6 percent today and touched 9,010, the strongest level since Dec. 8.

The yield on the nation’s 8.8 percent Islamic dollar notes due 2014 dropped 23 basis points, or 0.23 percentage point, to a one-week low of 3.41 percent, based on prices from Royal Bank of Scotland Group Plc. The yield on the 7.5 percent non-Islamic bond due 2016 declined 22 basis points to 3.36 percent.

Southeast Asia’s largest economy will expand more than 6 percent a year through 2013 as domestic demand insulates it from the global turmoil, Philip McNicholas, Fitch’s Hong Kong-based director of Asia-Pacific Sovereigns, said in a statement. Indonesia lost its investment-grade status at Fitch in December 1997 during the Asian financial crisis.

Banking Stocks Rise

Foreign funds held 223.85 trillion rupiah ($24.8 billion) of Indonesia’s government bonds on Dec. 15, compared with 214.79 trillion rupiah at the end of November, according to statistics published by the debt management office. The government plans to sell dollar- and yen-denominated debt next year, Rahmat Waluyanto, director-general of the office, said on Dec. 5.

Banking stocks provided the biggest boost to the composite index. PT Bank Central Asia, the nation’s largest bank by market value, rose 2.6 percent, the most this month. PT Astra International, the biggest stock by value, climbed 3 percent.

“The rating upgrade was something we’ve been waiting for a long time,” said Soni Wibowo, who helps manage about $2 billion of assets as vice president at PT Bahana TCW Investment Management in Jakarta.

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