Rupiah Approaches Two-Month Low Before Fuel-Subsidy Vote

Indonesia’s rupiah weakened, approaching a two-month low, ahead of a vote this week on a government plan to cut subsidies for fuel. Bonds advanced.

The currency fell 1.4 percent this quarter, the worst performer among Asia’s 10 most-traded currencies excluding the yen, as investors based overseas pulled money from the nation’s bonds on concern the planned fuel-price increases will spur inflation. At least 3,000 protesters took to the streets in Jakarta yesterday to demonstrate against the plan to raise the price of subsidized fuel by 33 percent.

“As long as the issue on fuel-price adjustments is not done with, the rupiah will continue to be under pressure,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “The demonstrations don’t really help to improve sentiment in the market.”

The rupiah dropped 0.2 percent to 9,190 per dollar as of 3:36 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It touched 9,225 on March 23, the lowest level since Jan. 12. One-month implied volatility in the rupiah, which measures exchange-rate swings used to price options, was unchanged at 8.25 percent.

Inflation could reach 6.8 percent in 2012 if the fuel-price increases are implemented, central bank Governor Darmin Nasution said March 8. Parliament will vote on the government’s proposed revisions to the 2012 budget, which include the fuel-price rises, on March 29. Consumer prices rose 3.6 percent last month from a year earlier.

Foreign holdings of Indonesian government debt have declined 4.5 percent from the end of January to 225.4 trillion rupiah ($24.5 billion) as of March 26, according to figures from the Finance Ministry.

The yield on the 7 percent note due May 2022 declined five basis points, or 0.05 percentage point, to 5.90 percent, according to midday prices from the Inter Dealer Market Association.

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