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Rupiah Falls After Fed Refrains From New Measures; Bonds Advance

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June 21 (Bloomberg) -- Indonesia’s rupiah fell after the Federal Reserve said it will expand its existing stimulus operations instead of embarking on new measures that may have spurred demand for emerging-market assets. Bonds advanced.

The Fed will increase its Operation Twist program of replacing short-term bonds with longer-term debt, while holding off from broader monetary easing. German Chancellor Angela Merkel said she expects a request from Spain in the coming days for as much as 100 billion euros ($127 billion) in aid for its banks. Foreign funds have cut holdings of Indonesian stocks by $183 million this month through yesterday, exchange data show.

“The rupiah is under pressure due to factors from the U.S. and Spain,” said Klara Pramesti, a research analyst in the treasury division at PT Bank Negara Indonesia in Jakarta. “The market is disappointed as they expected a new round of quantitative easing, which would have been positive for riskier assets.”

The rupiah weakened 0.4 percent to 9,481 per dollar as of 9:06 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It has lost 3.3 percent this quarter, the third-worst performance among Asia’s 10 most-traded currencies. One-month implied volatility, which measures exchange-rate swings used to price options, held at 11.50 percent.

The Fed embarked on two rounds of a tactic called quantitative easing by buying $2.3 trillion of bonds from December 2008 to June 2011 to boost the U.S. economy.

The yield on the government’s benchmark 10-year bonds dropped six basis points, or 0.06 percentage point, to 6.23 percent, the lowest level since May 10, data compiled by Bloomberg show.

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

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

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