Lilian Karunungan and Arijit Ghosh – Indonesia's rupiah strengthened the most since May 2006 on speculation the central bank sold foreign exchange to boost the local currency, which last week sank to a decade-low.
The rupiah led regional gains as China's biggest interest-rate cut in 11 years bolstered demand for emerging-market assets. The Jakarta Composite Index of shares rose0.8 percent today and MSCI's Asia-Pacific Index climbed 1.8 percent.
"Bank Indonesia is reducing demand for the dollar by offering them cheap," said Muhammad Fauzi Halim, a currency trader at PT Bank Resona Perdania in Jakarta. "The China rate cut helped boost sentiment for the currency and stocks."
The rupiah rose 4.2 percent to 12,050 per dollar as of 4:41 p.m. in Jakarta, from 12,550 late yesterday, according to data compiled by Bloomberg. The currency, which fell as low as 13,150 last week, pared its loss since the end of June to 23 percent.
Bank Indonesia will defend the rupiah, Governor Boediono said Nov. 25. The central bank offered dollars for sale at 12,150 rupiah this morning, Halim said. The nation's foreign-exchange reserves dropped some $10 billion in the three months through October as policy makers tried to check the local currency's slide.
Inflation slowing
Indonesia's three-year government bonds advanced for a third day on speculation the central bank will reduce its benchmark interest rate next week as inflation cools.
Inflation may have slowed to between 11 percent and 11.5 percent this month, from 11.8 percent in October, Finance Minister Sri Mulyani Indrawati said in Jakarta today.
"Investors expect the central bank will cut the BI rate next week," said Juniman, a senior economist at Bank Internasional Indonesia, who uses only one name. "Investors are entering the bond market again."
The yield on the 10 percent note due October 2011 slumped 1.6 percentage points to 14.7 percent, according to closing prices at the Inter Dealer Market Association. The price jumped 3.3083, or 33,083 rupiah per 1 million rupiah face amount, to 89.175. A basis point is 0.01 percentage point.