Rupiah Strengthens as Probable Rate Hold Offsets Europe Concern
Indonesia’s rupiah advanced as expectations the central bank will leave borrowing costs unchanged today outweighed concern that Europe’s debt crisis will worsen. Government bonds fell.
The monetary authority will keep its benchmark interest rate at 5.75 percent for a fourth month, according to all 21 economists in a Bloomberg survey. The MSCI Asia Pacific Index of shares dropped after Spanish and Italian bond yields surged yesterday as investors turned their focus to the Greek election on June 17, which may determine whether the country stays in the euro. The rupiah has fallen 2.7 percent since the end of April.
“Bank Indonesia maintaining the rate would provide some relief for the rupiah,” Klara Pramesti, a research analyst in the treasury division at Bank Negara Indonesia in Jakarta. “It is still a game of tug-of-war between negative sentiment from Europe and good domestic sentiment.”
The rupiah strengthened 0.1 percent to 9,446 per dollar as of 9:02 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. One-month implied volatility, which measures exchange-rate swings used to price options, held at 12.75 percent.
The central bank’s “stance has changed from pro-growth to pro-stability as persistent risk aversion resulted in outflows and a weakening of the rupiah,” analysts at DBS Group Holdings led by David Carbon in Singapore wrote in a note released today. The monetary authority is expected to maintain its reference rate until the end of the year, they wrote.
The yield on the government’s benchmark 10-year bonds rose one basis point, or 0.01 percentage point, to 6.45 percent, after closing at the lowest level since May 15 yesterday, according to data compiled by Bloomberg.
Bank Indonesia will begin offering dollar term deposits on June 13 to help stabilize the rupiah, Hendar, the director of monetary policy who uses only one name, said last week.
ING Groep NV expects the central bank to issue additional rules to increase the supply of dollars in the spot market, Joey Cuyegkeng, a Manila-based economist at the lender, wrote in a report yesterday. Yields on five- and 10-year local-currency bonds will decline by another 15 to 20 basis points in the near term, he wrote.