Indonesian Bonds Extend Gains After Central Bank Holds Rate

Indonesia’s 10-year bonds extended gains, pushing the yield to the lowest level in almost two weeks, after the central bank refrained from increasing borrowing costs. Rupiah forwards advanced.

Bank Indonesia kept its policy rate unchanged at 7.25 percent today, as predicted by 17 of 18 economists surveyed by Bloomberg. One expected a 25-basis-point increase. The monetary authority has raised the reference rate by 1.5 percentage points since mid-June as it seeks to narrow the current-account deficit from a record in the second quarter and stem inflation, which slowed to 8.4 percent last month from a four-year high of 8.79 percent in August.

“The move shows that the central bank is comfortable with inflation and expects it to be manageable going forward,” said Fahrudin Haris Prastowo, a fixed-income trader at PT Bank Rakyat Indonesia in Jakarta. “That gives room for bond yields to fall, with the 10-year reaching 7.5 percent by year-end.”

The yield on the government’s 5.625 percent bonds due May 2023 declined four basis points to 8.06 percent, the lowest level since Sept. 25, as of 4:21 p.m. in Jakarta, according to prices from the Inter Dealer Market Association. The yield has fallen 44 basis points this month.

Indonesia sold 12 trillion rupiah ($1.1 billion) of debt with tenors ranging from three months to 21 years in an auction today, exceeding the 8 trillion rupiah target, the debt management office said in a statement posted on its website. One-year notes were sold at a weighted average yield of 6.14 percent, compared with 6.62 percent in the secondary market.

Reserves Rise

Rupiah one-month non-deliverable forwards advanced 0.3 percent to 11,285 per dollar, data compiled by Bloomberg show. The contracts traded 2.2 percent stronger than the onshore spot rate, which fell 0.1 percent to 11,538 per dollar, prices from local banks show.

Consumer-price gains may be at the lower end of Bank Indonesia’s 9 percent to 9.8 percent full-year forecast this year, Deputy Governor Perry Warjiyo said today. Southeast Asia’s largest economy will probably expand 5.5 percent to 5.9 percent in 2013, compared with 6.2 percent last year, the central bank said in a statement today.

A daily fixing used to settle the contracts was set at 11,191 per dollar today, from 11,209 yesterday, according to the Association of Banks in Singapore. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell three basis points, or 0.03 percentage point, to 15.67 percent, data compiled by Bloomberg show.

Foreign-currency reserves climbed for a second month to $95.7 billion in September, from $93 billion the previous month, the central bank said in a statement late yesterday. That pared the loss this year to 15 percent. Bank Indonesia will announce policies to deepen financial markets tomorrow, Deputy Governor Warjiyo told reporters in Jakarta today.

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