Indonesia Rupiah Gains on Speculation Central Bank Intervening

By Lilian Karunungan

March 10 (Bloomberg) -- Indonesia’s rupiah, the worst- performing currency in Asia over the past three months, rose on speculation the central bank will intervene to slow the decline.

Bank Indonesia Governor Boediono said on March 6 that the nation’s foreign-exchange reserves increased to $53.7 billion after the government sold $3 billion in overseas bonds. Deputy Governor Hartadi Sarwono said last week the central bank doubled a currency swap deal with Japan to $12 billion in February.

“There is positive sentiment on the rupiah,” said Lindawati Susanto, head of currency trading at PT Bank Resona Perdania in Jakarta. “We know that the central bank is in the market to guard the volatility.”

The rupiah strengthened 0.7 percent to 12,003 per dollar as of 1:19 p.m. in Jakarta, compared with 12,090 on March 6, according to data compiled by Bloomberg. Local markets were shut yesterday for a holiday. Central banks intervene by arranging purchases or sales of currencies to influence exchange rates.

Bank Indonesia wants to expand its currency swap agreements to include Australia and the U.S., moves that may help bolster confidence in the rupiah as exports slump, Sarwono said.

The currency dropped about 9 percent in the past three months, the biggest loss among Asia’s 10 most-used currencies.

Non-deliverable forwards contracts signal traders are betting the rupiah will fall 1.2 percent to 12,145 per dollar in a month, compared with expectations for a rate of 12,225 yesterday. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.

Bonds Fall

Ten-year government bonds declined, after gaining last week when the central bank lowered its benchmark interest rate by 50 basis points to 7.75 percent. A basis point is 0.01 percentage point.

“Although secondary market yields on the 10-year bond might look attractive to domestic buy-hold investors, demand would be limited as the long-end is still viewed as prone to foreign outflows,” said Helmi Arman, a bond strategist at PT Bank Danamon in Jakarta.

The yield on the 11.5 percent note due September 2019 rose 7 basis points to 13.95 percent, according to midday prices at the Inter Dealer Market Association. The price declined 0.3556, or 3,556 rupiah per 1 million rupiah face amount, to 86.7160.

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