Rupiah Forwards, Bonds Decline on Concern Inflation Will Quicken

Indonesia’s rupiah forwards weakened and government bonds declined on concern inflation will accelerate this year as the government reduces energy subsidies.

Global funds pulled 1.29 trillion rupiah ($133 million) from local-currency sovereign bonds last week through Jan. 10, finance ministry data show. Consumer-price gains may quicken to 5.4 percent in 2013 from 4.3 percent last year due to increases in electricity tariffs and the minimum wage, PT Mandiri Sekuritas economist Leo Rinaldy wrote in a note today. The central bank will respond to concerns over the current-account deficit, which it estimates reached 2.3 percent last quarter, the largest since at least 1997, Governor Darmin Nasution told reporters on Jan. 11.

The rupiah’s one-month non-deliverable forwards declined 0.1 percent to 9,920 per dollar as of 3:22 p.m. in Jakarta, data compiled by Bloomberg show. That is 2.5 percent weaker than the onshore spot rate, which fell 0.4 percent to 9,670, according to prices from local banks compiled by Bloomberg. A daily fixing used to settle non-deliverable forward contracts was set at 9,877 today by the Association of Banks in Singapore.

“The gap between the forwards and the spot market keeps widening as Bank Indonesia is committed to guarding the rupiah onshore,” said Nurul Eti Nurbaeti, head of treasury research at PT Bank Negara Indonesia. “There is concern over the economic outlook, considering prospects for faster inflation and the deficits on the trade and current accounts.”

The currency’s one-month implied volatility, a measure of expected moves in exchange rates used to price options, was unchanged at 6.75 percent, the highest level since September.

The government’s 5.25 percent notes due May 2018 declined for the first time in four days, pushing the yield up one basis point, or 0.01 percentage point, to 4.67 percent, according to the Inter Dealer Market Association.

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