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Indonesian Rupiah Falls as Costlier Oil Fuels Inflation Concern

March 21 (Bloomberg) -- Indonesia’s rupiah weakened on concern a surge in global oil prices will boost the nation’s import costs and spur inflation. Bonds were little changed.

Crude oil in New York jumped 7.8 percent this year to $106.53 per barrel today. Indonesia, a net importer of crude, has proposed revising its inflation target for 2012 to 7 percent from 5.3 percent. Consumer-price gains may quicken to 6.8 percent from last month’s 3.56 percent if policy makers go ahead with a proposed cut in fuel subsidies, Bank Indonesia Governor Darmin Nasution said this month.

“The inflation issue resonates in Indonesia, giving the rupiah a negative sentiment,” said Klara Pramesti, a Jakarta-based analyst at PT Bank Negara Indonesia.

The rupiah lost 0.2 percent to 9,188 per dollar as of 4:31 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency fell 0.3 percent this week.

One-month implied volatility in the rupiah, which measures exchange-rate swings used to price options, fell 0.39 to 7.86 percent today, the lowest level since September 13. Bank Indonesia will intervene in the foreign-exchange and bond markets to stabilize the rupiah, said a note posted on its website March 8.

“The rupiah is always guided by Bank Indonesia through intervention,” Pramesti said.

The yield on the government’s 7 percent bonds due May 2022 rose two basis points, or 0.02 percentage points, to 5.93 percent, according to closing prices from the Inter Dealer Market Association.

Monetary Tightening

The central bank will raise its benchmark interest rate by 75 basis points to 6.5 percent by the end of this year as a planned rise in the price of subsidized fuel spurs inflation, analysts at Oversea-Chinese Banking Corp. in Singapore led by Selena Ling wrote in a research note today. Bank Indonesia maintained its reference rate at 5.75 percent on March 8, after reducing borrowing costs three times in five months.

“The recent rhetoric from various BI officials and the latest monetary policy statement suggest that the BI had been previously unaware of the government’s sudden u-turn in announcing the fuel price hike,” they wrote in the note, referring to Bank Indonesia. “We expect it to go ahead and unwind the series of rate cuts that it has triggered since late last year.”

To contact the reporters on this story: Yudith Ho in Singapore at yho35@bloomberg.net.

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

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