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Rupiah Weakens on Concern Fuel-Price Rise Will Boost Inflation

Indonesia’s rupiah declined on concern a proposal to increase gasoline prices for privately owned cars will quicken inflation from a 22-month high in March. Government bonds were little changed.

The proposal, which would raise gasoline prices by about 50 percent for privately owned vehicles excluding motorcycles, will add 0.2 percentage point to inflation, Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG, wrote in a research note yesterday. Subsidized fuel consumption will exceed the government’s target if there are no policy changes, Finance Minister Agus Martowardojo said yesterday, adding the budget deficit may be 2 percent to 2.4 percent of gross domestic product in 2013, compared with a 1.65 percent goal.

“Curbing fuel subsidies will quicken inflation and weaken the rupiah in the short term,” said Fahrudin Haris Prastowo, a foreign-exchange trader at PT Bank Rakyat Indonesia. “Though the long-term effect will be very positive for the fiscal position.”

The rupiah slipped 0.1 percent to 9,716 per dollar as of 3:56 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It traded at a 0.2 percent premium to one-month non-deliverable forwards, which declined 0.1 percent to 9,745, data compiled by Bloomberg show.

Consumer prices rose 5.9 percent in March, the most since May 2011, official data show.

A daily fixing used to settle the rupiah derivatives was set at 9,721 by the Association of Banks in Singapore, compared with 9,712 yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 12 basis points to 5.82 percent.

The yield on the 5.625 percent bonds due May 2023 rose one basis point, or 0.01 percentage point, to 5.46 percent, after reaching a one-month low of 5.45 yesterday, prices from the Inter Dealer Market Association show.

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