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Rupiah Gains Most in Six Weeks, Bonds Rise on Foreign Reserves

Indonesia’s rupiah advanced by the most in almost six weeks and government bonds gained after the central bank said its foreign-exchange reserves increased in August, boosting its ability to support the currency.

The yield on one-year sovereign bonds dropped to a two-week low after global funds added 840 billion rupiah ($88 million) to their local debt holdings in the first two days of this week, finance ministry data show. Foreign reserves reached $109 billion, from $106.6 billion in July. That is “more than sufficient” to cover an unexpected increase in imports, Deputy Governor Hartadi Sarwono said today, adding that the central bank will continue to intervene in the currency market if needed.

“Improving foreign reserves creates market expectations that the rupiah will stabilize,” said Handy Yunianto, the head of fixed-income research at PT Mandiri Sekuritas in Jakarta. “Subsiding currency risk will prompt bonds to rally as foreign investors re-enter the market.”

The rupiah strengthened 0.3 percent to 9,565 per dollar as of 4:40 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. The currency reached 9,604 yesterday, the weakest level since May 31. One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 6.5 percent.

The yield on the government’s 9 percent bills maturing in September 2013 fell 12 basis points, or 0.12 percentage point, to 5.30 percent, the lowest level since Aug. 21, closing prices from the Inter Dealer Market Association show. The yield on Indonesia’s 7 percent bonds due May 2022 dropped two basis points to 6.06 percent, the lowest since Aug. 24.

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