Rupiah Drops to Two-Week Low as Floods Seen Spurring Inflation

Indonesia’s rupiah fell to the lowest level in almost two weeks and government bonds declined after the central bank warned of faster inflation as floods disrupt supplies of goods and commodities.

Consumer prices probably gained around or slightly more than 1 percent in January from the previous month, Dody Budi Waluyo, Bank Indonesia’s executive director for monetary policy, said Jan. 21. That would be the fastest pace since August. The monetary authority held its benchmark interest rate at 7.5 percent for a second straight month on Jan. 9.

The rupiah weakened 0.2 percent to 12,165 per dollar as of 4:12 p.m. in Jakarta, prices from local banks show. It reached 12,176 earlier, the lowest since Jan. 10. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 23 basis points, or 0.23 percentage point, to 11.41 percent and touched 11.11 percent earlier, the least since Aug. 15, according to data compiled by Bloomberg.

“The rupiah is less volatile due to inflows, but demand for dollars in the onshore market persists,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “There seems to be increased inflationary pressure on a month-on-month basis. It’s a concern because there needs to be monetary action on it.”

In the offshore market, one-month non-deliverable forwards slid 0.6 percent to 12,165 per dollar, the same level as the onshore spot rate, data compiled by Bloomberg show. A fixing used to settle the contracts was set at 12,057 per dollar today by the Association of Banks in Singapore, from 12,011 yesterday.

Overseas funds added 6.22 trillion rupiah ($511 million) to local-currency debt holdings this month through yesterday and bought $300.5 million more local stocks than they sold in the same period, official data show.

The yield on the 8.375 percent government bonds due March 2024 climbed six basis points to 8.65 percent, the highest level since Jan. 14, according to the Inter Dealer Market Association.

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