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Rupiah Weakens as Fuel-Subsidy Concern Outweighs Fed Outlook

Indonesia’s rupiah dropped as concern the government’s plan to restrict fuel subsidies will stoke inflation outweighed optimism the U.S. economic recovery is on track. Government bonds were steady.

Indonesia is ready to start limiting sales of subsidized fuel in May, President Susilo Bambang Yudhoyono said in Jakarta today. Consumer prices may rise by 3.5 percent to 5.5 percent next year, compared with 3.97 percent in March, Finance Minister Agus Martowardojo said today. The U.S. economy will expand as much as 2.9 percent this year, compared with a previous estimate of 2.7 percent, Fed Chairman Ben S. Bernanke said yesterday.

“The rupiah should be quite stable at the current level,” said Wiwig Santoso, the Jakarta-based head of treasury and markets at PT DBS Bank Indonesia. “The market is still watching the potential impact from possible gasoline-subsidy alteration. The market is more convinced that the U.S. is doing better.”

The rupiah fell 0.1 percent to 9,198 per dollar as of 4:15 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. One-month implied volatility, which measures exchange-rate swings used to price options, dropped 12 basis points to 5.63 percent, the lowest level since August.

Bank Indonesia has eased the intensity of its intervention to stabilize the rupiah, Perry Warjiyo, director for economic and monetary policy research, said in Jakarta yesterday. The central bank prefers the currency to strengthen, he said.

The yield on the government’s 7 percent bonds due May 2022 dropped one basis point, or 0.01 percentage point, to 5.90 percent, according to final prices from the Inter Dealer Market Association. It climbed two basis points this week.

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