Indonesia's Rupiah Weakens on Dollar Hoarding; Bonds Advance

By Lilian Karunungan

Nov. 10 (Bloomberg) -- Indonesia's rupiah fell on speculation companies were hoarding dollars to meet import payments and pay overseas debt. Three-year bonds gained.

The rupiah was the worst performer among Asia's 10 most- active currencies as overseas investors sold more Indonesian shares than they bought on four of the last five trading days. The currency has declined 16 percent in the past three months and touched a seven-year low of 11,900 a dollar on Oct. 28.

The rupiah weakened 0.2 percent to 10,925 per dollar as of 4:18 p.m. in Jakarta, from 10,900 on Nov. 7, according to data compiled by Bloomberg. It earlier dropped as much as 2.2 percent to 11,150.

``Once the rupiah hits below 11,000, many want to buy the U.S. dollar,'' said Lindawati Susanto, head of currency trading at PT Bank Resona Perdania in Jakarta. ``Even though it's just the beginning of the month, businesses are afraid the rupiah will weaken. They want to keep dollars for payments.''

Bank Indonesia will keep entering the market to prevent a ``steep'' decline in the rupiah, Deputy Governor Hartadi Sarwono said today. The country's currency reserves fell to $50.58 billion at the end of October from $60.56 billion on July 25 as the central bank sold foreign exchange to stem a slide in the rupiah, which has slid 15 percent versus the dollar in the past three months.

Fuel Price Cuts

Three-year government bonds climbed, extending last week's rally on speculation inflation will slow next year. Indonesia may reduce the price of diesel by 9.1 percent in December to reflect declines in crude oil prices, Energy Minister Purnomo Yusgiantoro said today in Jakarta.

``Investors prefer the medium-term bond rather than the long-end,'' said Handy Yunianto, a bond analyst at Mandiri Sekuritas, part of Indonesia's biggest lender. ``We believe next year's inflation will be going down.''

The yield on the 13.4 percent note due in February 2011 fell 73 basis points to 14.780 percent, according to closing prices at the Inter Dealer Market Association. The price advanced 1.3278, or 13,278 rupiah per 1 million rupiah face amount, to 97.375. A basis point is 0.01 percentage point.

The Indonesian central bank on Nov. 6 forecast that inflation will cool to no more than 7.5 percent in 2009, from at least 11.5 percent this year. Inflation erodes the purchasing power of the fixed-income payments from bonds.

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