Rupiah Complete Weekly Gain as Slowing Inflation Lures Inflows

Indonesia’s rupiah completed its first weekly advance in almost a month as slowing inflation lured inflows to government debt.

Global funds pumped 3.39 trillion rupiah ($294 million) into local-currency sovereign notes in the first two days of this week, taking holdings to a record 376.28 trillion rupiah, official data show. Consumer prices rose 7.25 percent in April from a year earlier, the least in 10 months, data showed today. The country posted a trade surplus of $673 million in March, according to another report today.

“The fundamentals are improving and investors are chasing real interest rates offered by Indonesian bonds as inflation slows,” said Mika Martumpal, head of treasury research and strategy at PT Bank CIMB Niaga in Jakarta. “As long as the trade balance is in surplus, the rupiah should be supported.”

The rupiah strengthened 0.4 percent this week to close at 11,523 per dollar, prices from local banks show. The currency rose 0.3 percent today from April 30, extending this year’s gain to 5.6 percent. Local financial markets were closed yesterday for a public holiday.

Consumer prices declined 0.02 percent in April from March, the first deflation since September, the figures showed today. The trade surplus was bigger than the $520 million excess predicted in a Bloomberg survey.

In the offshore market, one-month non-deliverable forwards rose 0.4 percent this week to 11,569 per dollar, trading 0.4 percent weaker than the onshore rate, data compiled by Bloomberg show. The contracts climbed 0.1 percent today.

Bank Indonesia set a fixing used to settle the forwards at 11,537 today, compared with 11,601 on April 25. One-month implied volatility, a measure of expected swings in the exchange rate used to price options, dropped one basis point, or 0.01 percentage point, this week to 11.06 percent.

The yield on the government’s 8.375 percent bonds due March 2024 rose five basis points from April 25 to 7.97 percent, according to the Inter Dealer Market Association. The yield dropped two basis points today.

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