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Rupiah Drops as Slower Inflation Prompts Rate-Cut Speculation

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Jan. 4 (Bloomberg) -- Indonesia’s rupiah declined for a third day on speculation the central bank will reduce borrowing costs to support the economy as inflation slows.

Consumer prices in Indonesia rose 3.79 percent in December from a year earlier after increasing 4.15 percent the previous month, the Central Bureau of Statistics said Jan. 2. Bank Indonesia left the benchmark interest rate unchanged at 6 percent last month and the next policy meeting is on Jan. 12. Exports grew at the slowest pace in more than two years in November, official data showed this week.

“The inflation numbers may be indicating that Bank Indonesia may cut the interest rate again,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “Uncertainty in global markets is also putting pressure on the rupiah.”

The rupiah weakened 0.4 percent to 9,170 per dollar as of 3:20 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It has dropped 1.1 percent this year.

The yield on the government’s benchmark 8.25 percent notes due July 2021 fell six basis points, or 0.06 percentage point, to 6.02 percent today, according to midday prices from the Inter-Dealer Market Association.

To contact the reporter on this story: Khalid Qayum in Singapore at kqayum@bloomberg.net

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

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