Lilian Karunungan – Indonesia's rupiah erased losses on speculation the central bank intervened to support the currency. Government bonds rose.
The currency had dropped to a three month low this week, extending this year's losses to 9.3 percent, as overseas investors sold the nation's stocks and bonds on speculation signs of a prolonged global recession will keep funds away from emerging markets. Bank Indonesia Deputy Governor Hartadi Sarwono said today that the central bank had been in the market to reduce volatility in the rupiah.
The central bank is "more concerned about volatility," said Wiling Bolung, head of treasury at ANZ Panin Bank in Jakarta. "They're not targeting a certain level. The market is still looking at the real flows. Buying demand for the dollar is still there. It's still risk aversion."
The rupiah was little changed at 12,075 a dollar, versus 12,070 yesterday in Jakarta, according to data compiled by Bloomberg. The currency earlier fell 0.7 percent to 12,150.
Foreign ownership of local-currency bonds fell 9.6 percent as of March 3 from December, the government said today. Funds abroad sold more Indonesian shares than they bought in the last three trading days, according to the stock exchange.
Non-deliverable forwards contracts signal traders are betting the rupiah will drop 2.4 percent to 12,320 per dollar in a month, after indicating a rate of 12,325 yesterday. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.
More rate cuts
Overseas investors' holdings of local bonds fell to 79.24 trillion rupiah ($6.6 billion) from 87.61 trillion rupiah in December, according to the finance ministry's Web site. Ownership reached a record 106.66 trillion rupiah in August before risk aversion mounted as Lehman Brothers Holdings Inc. filed for bankruptcy in September.
Five-year government bonds advanced for a second day after the central bank cut its benchmark interest rate by half a percentage point to 7.75 percent yesterday and the government said it will get $5.5 billion of loans to help finance its budget deficit.
"It's supportive of the bond market because of the supply issue and also because the central bank is cutting rates," said Euben Paracuelles, an economist at Royal Bank of Scotland Plc in Singapore. "I think after yesterday, they might even go to 7 percent. Bond yields have further scope to fall."
The yield on the 11.25 percent note due May 2014 dropped 30 basis points, or 0.30 percentage point, to 12.74 percent, according to closing prices at the Inter Dealer Market Association. The price rose 1.0674, or 10,674 rupiah per 1 million rupiah face amount, to 94.4362.