Indonesian Rupiah Strengthens Most Since October After BOJ Eases

  • Dovishness of central banks to boost carry trade: BNP Paribas
  • Currency leads gains in Asia to advance for a fourth day

The rupiah rose the most since October and sovereign bonds advanced on speculation Indonesian assets will lure more inflows amid monetary easing by some of the world’s biggest central banks.

The currency led gains in Asia after the Bank of Japan surprised investors on Friday by following the European Central Bank to impose negative interest rates in a bid to revive lending. That could drive more funds to Indonesia’s local-currency sovereign bonds, which have already attracted 18.1 trillion rupiah ($1.3 billion) of inflows this month as the central bank cut its policy rate for the first time in almost a year.

The rupiah strengthened 1 percent, the most since Oct. 28, to 13,639 a dollar at the close in Jakarta, following a 0.7 percent gain on Friday, according to prices from local banks. It’s rallied 0.4 percent in three months, the best performance among emerging markets after Malaysia’s ringgit.

“There’s better risk sentiment in the market after the BOJ move,” said Andy Ji, a Singapore-based foreign-exchange strategist at Commonwealth Bank of Australia. “The rupiah offers attractive yields and is undervalued relative to its peers in the region."

Carry Trade

The dovishness of major central banks and efforts by Chinese authorities to control the yuan has opened a short-term window for more bullish carry trades, Jennifer Kusuma, an analyst at BNP Paribas SA in Singapore, wrote in a note on Monday. There is room for Bank Indonesia to ease monetary policy further and clients should buy the nation’s 20-year sovereign bonds, she said.

The rupiah had been more undervalued than most of its developing-nation peers and should be fairly stable in 2016, according to Ebury Partners Ltd, the most-accurate rupiah forecaster in Bloomberg rankings in the third and fourth quarters. Ebury sees the Indonesian currency ending 2016 at 13,800 a dollar.

Indonesian consumer prices rose 4.14 percent in January from a year earlier, official data showed on Monday. That compared with 3.35 percent in December and the 4.26 percent median estimate in a Bloomberg survey. Core inflation eased to 3.62 percent from 3.95 percent.

The yield on the country’s 10-year notes fell 13 basis points to 8.14 percent, Inter Dealer Market Association prices show. That on the 20-year securities dropped 15 basis points to 8.46 percent, while the two-year yield declined six basis points to 7.92 percent. Indonesia’s rupiah sovereign bonds have rallied 3.1 percent over the past month, the most in Asia, Bloomberg indexes show.

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