Indonesia Rupiah, Stocks Advance After Central Bank Raises Rates

Indonesian stocks gained the most in seven weeks and the rupiah rose after the central bank raised borrowing costs to the highest level since 2009 in an unscheduled move. Government bonds rose.

The Jakarta Composite index advanced 1.9 percent at the close to 4,103.593, the most since July 11. The rupiah rose 0.1 percent to 10,935 per dollar as of 5:32 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. One-month non-deliverable forwards gained 0.6 percent to 11,478, a 4.7 percent discount to the spot rate.

Bank Indonesia raised its reference rate by 50 basis points to 7 percent, it said after a board of governors meeting today that wasn’t part of the regular schedule of monthly policy reviews. It increased its deposit facility rate, or Fasbi, by 50 basis points to 5.25 percent. The central bank extended a $12 billion bilateral swap deal with the Bank of Japan, allowing the two to borrow from each others’ foreign-exchange reserves, spokesman Difi Johansyah said.

“It is aimed at preventing the rupiah currency from falling too deeply,” Priyo Santoso, chief investment officer at PT Mandiri Manajemen Investasi, said by phone from Jakarta. “Overall, it is a very good policy by Bank Indonesia to bring back investors’ confidence.”

PT Astra International, the largest company in the Jakarta index by market capitalization, gained 4.5 percent. PT Telekomunikasi Indonesia added 3.5 percent and PT Kalbe Farma jumped 9.2 percent, the steepest increase since June 26.

Temporary Fix

The yield on government bonds due May 2023 dropped 14 basis points to 8.73 percent, after earlier touching 8.87 percent, the highest level since February 2011, prices from the Inter Dealer Market Association show.

A fixing used to settle the forwards set by the Association of Banks in Singapore was at 11,294 today, the same level as yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined nine basis points, or 0.09 percentage point, to 19.83 percent, data compiled by Bloomberg show.

“The rupiah appreciated slightly, but the reaction will probably not be long-lasting,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The swap lines with Japan is not a lot in the grand scheme of things, because Bank Indonesia has depleted the reserves by so much that $12 billion could get exhausted in a couple of months.”

Bank Indonesia’s foreign-exchange reserves dropped to $92.7 billion as of the end of July from $124.6 billion in August 2011, according to data compiled by Bloomberg. The central bank expects inflation to pick up to between 9 percent and 9.8 percent by the end of this year, after reaching a four-year high of 8.6 percent in July, it said.

“To see if there will be a reversal in the rupiah exchange rate, we will have to wait for economic data in the next one or two months,” Alvin Pattisahusiwa, chief investment officer at PT Manulife Asset Management in Jakarta, said by phone.