Rupiah Set for Best Month Since January 2012; Bonds Decline

Indonesia’s rupiah is set for the best month since January 2012 after global investors bolstered holdings of the nation’s stocks by the most since April 2011. Government bonds declined.

Foreign funds bought $1.1 billion more local shares than they sold in February, exchange data show, helping drive the Jakarta Composite Index to an all-time high today. Overseas money managers added 7.31 trillion rupiah ($756 million) to their ownership of rupiah-denominated sovereign debt this month through Feb. 26, according to official figures. The economy may expand 6.3 percent this year, compared with 6.2 percent in 2012, according to a Bloomberg survey.

“The rupiah’s strengthening has been driven by demand from foreign funds for local assets,” said Mika Martumpal, a currency analyst at PT Bank CIMB Niaga in Jakarta. “Investors are still seeking higher returns where they can find it, and they see strong growth potential in Indonesia.”

The rupiah advanced 0.7 percent this month to 9,667 per dollar as of 3:21 p.m. in Jakarta in the best currency gain in Asia, according to prices from local banks. It traded at a 0.03 percent premium to the one-month non-deliverable forwards, which rose 1 percent this month to 9,670, data compiled by Bloomberg show.

A daily fixing used to settle the derivatives was set at 9,669 today, from 9,687 yesterday, by the Association of Banks in Singapore. The contracts gained 0.3 percent today and 1.6 percent for the year, while the spot rate advanced 0.2 percent today and declined 0.3 percent in 2013.

One-month implied volatility in the rupiah, which measures expected moves in the exchange rate used to price options, dropped 44 basis points, or 0.44 percentage point, this month to 5.65 percent.

The yield on the government’s 5.625 percent bonds due May 2023 climbed one basis point in February to 5.34 percent, prices from the Inter Dealer Market Association show. The yield was little changed today and rose 16 basis points this year.

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