Indonesia's Rupiah Rises to Highest in Seven Weeks on Yield

By Lilian Karunungan

June 26 (Bloomberg) -- Indonesia's rupiah rose to the strongest level in almost seven weeks on speculation overseas investors will buy the nation's bonds as the yield advantage over the U.S. widens.

The currency gained 1.8 percent this year as Bank Indonesia raised its benchmark interest rate to a one-year high this month after inflation accelerated to the fastest pace in 20 months in May. The central bank will next meet to decide interest rates on July 3. The U.S. Federal Reserve kept its target rate at 2 percent yesterday.

``With the Fed holding the rate and if BI will raise the rate, that's good for rupiah assets,'' said Rio Lanasier, a currency trader at Bank DBS Indonesia in Jakarta. ``Mostly foreign banks sold dollars to get rupiah to get into bonds.''


The currency rose as high as 9,225, the highest level since May 9, before trading at 9,229 per dollar as of 9:14 a.m. in Jakarta, compared with 9,263 late yesterday, according to data compiled by Bloomberg. The rupiah may strengthen to 9,220 between now and the end of next week, Lanasier forecast.

The central bank may raise its reference rate for bill sales next week by 25 basis points to 8.75 percent, Lanasier said, pushing Indonesia's benchmark to 6.75 percentage points more than the Fed's, the widest gap since 2006.

Inflation may have quickened to 12.7 percent in June from a year earlier, compared with 10.4 percent in May, according to the median estimate of 12 economists in a Bloomberg News survey before a government report on July 1.

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.