Indonesian Rupiah Holds Near Three-Week Low After Rate Increase

By Patricia Lui

Sept. 4 (Bloomberg) -- Indonesia's rupiah held near a three-week low after the central bank raised its benchmark policy rate for the fifth month to slow inflation. Government bonds fell.

The currency was little changed after Bank Indonesia increased its policy rate a quarter point to 9.25 percent, as forecast by 23 of 25 economists surveyed by Bloomberg News. Any losses in the rupiah may be minimal as the central bank will stem any weakness to cool inflation near a 22-month high, said Christy Tan, senior currency strategist at Bank of America Corp.

``The rupiah is stable around current levels and any weakness in the rupiah is likely to be resisted by the central bank,'' Singapore-based Tan said. The rate increase was ``more or less priced into the market.''

The rupiah traded at 9,208 per dollar as of 2:10 p.m. in Jakarta, versus 9,212 yesterday, according to data compiled by Bloomberg. It earlier touched 9,225, its weakest since Aug. 11.

The central bank said it remains ``on alert'' as ``inflationary pressures in the domestic market are still strong especially as a result of aggregate demand which is growing fast,'' according to a statement accompanying the decision.

Consumer prices rose 11.85 percent in August from a year earlier, compared with an increase of 11.9 percent in July, the government said on Sept. 1. Prices may increase further this month as the country with the largest Muslim population prepares to celebrate Id-ul-Fitr in October to mark the end of the fasting month of Ramadan.

Bonds Fall

Ten-year bonds fell, ending three days of gains, after the central bank signaled that it will likely raise interest rates again to contain inflation.

The yield on the benchmark 10-year note due September 2018 rose 4 basis points to 12 percent, according to mid-day prices from the Inter Dealer Market Association. The price declined 0.2050, or 2,050 rupiah per 1 million face amount, to 82.789. A basis point is 0.01 percentage point.

Bank Indonesia said it would keep evaluating its rate policy as a pickup in consumer spending threatens to stoke inflation already at the fastest in almost two years.

A policy rate of 9.5 percent is ``adequate'' to keep price gains within the central bank's inflation target of 6.5 percent to 7.5 percent next year, Deputy Governor Hartadi Sarwono said in an interview on Aug. 8.

To contact the reporter on this story: Patricia Lui at plui4@bloomberg.net