Bloomberg News

Rupiah, Bonds Fall as Government Reviews Raising Fuel Subsidies

March 02, 2012

Indonesia’s rupiah dropped for a second day and bonds fell on concern the government’s plan to reduce fuel subsidies will re-ignite inflation in Southeast Asia’s biggest economy.

Policy makers will discuss raising energy prices when the 2012 state budget is revised this month, Hatta Rajasa, coordinating minister for the economy, said last week. Bank Indonesia forecasts that raising fuel prices by 1,500 rupiah ($0.17) a liter will add 2.4 percent to inflation, Deputy Governor Halim Alamsyah said today. The central bank, which has cut interest rates three times in a year, is prepared to respond to a surge in prices if needed, Alamsyah said yesterday.

“We’ve probably seen the end of Bank Indonesia’s rate cuts,” said Charlie Lay, an economist and currency strategist at Commerzbank Securities in Singapore. “The focus now is very much on the effect of the fuel-price adjustment.”

The rupiah fell 0.1 percent to 9,088 per dollar as of 4:08 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency gained 0.3 percent this week.

Inflation slowed to 3.56 percent last month from 3.65 percent in January, the Central Bureau of Statistics said yesterday.

The government will propose a revised inflation target of 6 percent to 7 percent this year, from 5.3 percent earlier, and a price assumption for crude oil to $105 a barrel from $90 a barrel in the amended budget, Rajasa said yesterday.

The yield on the government’s 7 percent bonds due May 2022 climbed five basis points, or 0.05 percentage point, to 5.56 percent, according to closing prices from the Inter Dealer Market Association. The yield rose 10 basis points this week.

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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