Bloomberg News

Rupiah Erases Loss as China Pledges to Help Europe; Bonds Gain

February 15, 2012

Feb. 15 (Bloomberg) -- Indonesia’s rupiah erased an earlier loss after China said it will help resolve Europe’s debt crisis, bolstering demand for emerging-market assets. Government bonds advanced.

The currency halted a slide toward the lowest level in almost a month after the People’s Bank of China Governor Zhou Xiaochuan pledged today to invest in Europe’s bailout fund to help ease the region’s debt crisis.

“The market always welcomes reassurances about China’s participation in the Europe situation,” said Sim Moh Siong, a currency strategist at Bank of Singapore Ltd. “The immediate concern is still the Greek issue. China’s firepower will be useful at a later stage.”

The rupiah traded at 9,032 per dollar as of 4:49 p.m. in Jakarta, versus 9,030 yesterday, according to prices from local banks compiled by Bloomberg. The currency earlier lost as much as 0.5 percent and touched 9,130 yesterday, the weakest level since Jan. 18.

China, which holds the world’s largest foreign-exchange reserves of $3.18 trillion, has previously signaled it wants to diversify the holdings away from dollar-based assets. The government is considering options for the Europe bailout fund through the International Monetary Fund, Premier Wen Jiabao said on Feb. 2.

Bonds Advance

The yield on the 9 percent bond due September 2018 fell two basis points, or 0.02 percentage point, to 4.76 percent, according to prices from the Inter Dealer Market Association. The rate is the lowest since the government sold the notes in September 2007.

Indonesia sold 2.2 trillion rupiah ($243 million) worth of Islamic bonds on Feb. 14, attracting 7.1 trillion rupiah of bids, according to the finance ministry’s debt management office. Bank Indonesia unexpectedly cut its reference rate by 25 basis points to 5.75 percent on Feb. 9. Inflation slowed for a fifth straight month in January to 3.65 percent, and the central bank kept its inflation target of 3.5 percent to 5.5 percent for 2012 and 2013.

“The rate-hike cycle appears to have come to an end for most Asian countries, and a shift to accommodative monetary policies in the near term will provide upside potential to government bonds,” said Chia-Liang Lian, the Singapore-based head of investment management for Asia excluding Japan at Western Asset Management Co. Lian said he favors the rupiah among his Asian currency bets.

--With assistance from Fion Li in Hong Kong and David Yong Singapore. Editors: Andrew Janes, Simon Harvey

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To contact the reporters on this story: Yudith Ho in Singapore at yho35@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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