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Indonesian Bonds Advance as Inflation Moderates; Rupiah Steady

Indonesian government bonds advanced, pushing the 10-year yield down by the most in four weeks, as data showed inflation unexpectedly slowed. The rupiah was little changed after the trade balance swung to a surplus.

Consumer prices gained 4.31 percent last month, compared with 4.58 percent in August and the median 4.6 percent forecast of economists surveyed by Bloomberg, official figures showed today. The government also reported an August trade surplus of $249 million, which compares with a revised deficit of $264 million for July and a $62 million shortfall predicted in a Bloomberg survey.

The yield on benchmark 10-year debt dropped nine basis points, or 0.09 percentage point, to 5.93 percent, closing prices from the Inter Dealer Market Association show. That was the sharpest decline since Sept. 3 and the lowest level since Sept. 19.

“Slowing inflation means Bank Indonesia is under no pressure to raise rates,” said Wiling Bolung, the head of treasury at PT Bank ANZ Indonesia in Jakarta.

Bank Indonesia kept its benchmark interest rate at a record-low 5.75 percent for a seventh straight meeting in September, helping sustain growth in Southeast Asia’s biggest economy. The Organization for Economic Cooperation and Development said last week Indonesia should be ready to tighten monetary policy as faster expansion boosts prices.

‘Risk-On Sentiment’

“We expect the seasonal fourth quarter bounce in food prices to keep headline inflation sticky around 4.6 percent for the rest of the year,” Tim Condon, chief Asia economist at ING Groep NV in Singapore, wrote in a report today. He forecast the yield on 10-year government notes will slide to 5 percent by year-end due to “the inflation backdrop and prevailing risk-on sentiment.”

The rupiah traded at 9,587 per dollar as of 4:27 p.m. in Jakarta, after closing at 9,589 on Sept. 28, prices from local banks compiled by Bloomberg show. It weakened 1.7 percent last quarter, the worst performance among Asia’s 11 most-traded currencies. One-month implied volatility, which measures exchange-rate swings used to price options, dropped 63 basis points to 6 percent.

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