Oct. 31 (Bloomberg) -- Indonesian sovereign bonds completed their biggest monthly gain since March after the central bank unexpectedly lowered its benchmark interest rate and the government purchased debt.
Bank Indonesia cut its key rate by 25 basis points to 6.50 on Oct. 11, a move not predicted by any of 15 economists surveyed by Bloomberg. Foreign ownership of government debt rose 2.5 percent to 219.42 trillion rupiah ($24.8 billion) since the decision through Oct. 27, according to finance ministry data. That followed outflows of 5.63 trillion rupiah in the first week of October amid concern Europe’s debt crisis was worsening. Hendar, Bank Indonesia’s director of monetary policy, said on Oct. 3 the central bank would purchase government bonds.
“Foreign funds have been coming back in,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “Bank Indonesia interfering in the local bond market has helped to maintain positive sentiment. The risk appetite in global markets also improved.”
The yield on government’s 8.25 percent bonds due July 2021 declined 60 basis points, or 0.60 percentage point, this month to 6.34 percent today, according to the Inter-Dealer Market Association.
The rupiah weakened 0.7 percent this month and today to 8,855 per dollar as of 4 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. Most Asian currencies dropped after Japan’s Finance Minister Jun Azumi said today his government intervened in the market to weaken the yen, spurring speculation other regional central banks will follow suit.
Overseas investors bought $334 million more Indonesian shares than they sold this month through Oct. 28, taking net purchases in 2011 to $2.2 billion, according to exchange data.
Bank Indonesia is selling dollars when needed to ease volatility in the currency, Deputy Governor Hartadi Sarwono said on Oct. 7.
--Editors: Greg Ahlstrand
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