Indonesia’s rupiah rose after the central bank signaled it may increase reserve ratios for lenders to reduce funds in the banking system and mitigate the impact of a planned cut in fuel subsidies on inflation.
Bank Indonesia is considering the use of its reserve- requirement rule, Governor Darmin Nasution said on March 9, adding that it isn’t the preferred policy tool. The government has proposed revising its inflation target in the 2012 state budget to 7 percent from 5.3 percent as ministers meet this month to discuss raising energy prices.
“It would be supportive for the rupiah if the central bank undertakes some form of policy tightening because market concerns have been regarding inflation and the appropriateness of monetary policy,” said Prakriti Sofat, a Singapore-based regional economist at Barclays Capital.
The rupiah advanced 0.1 percent to 9,169 per dollar as of 4:32 p.m. in Jakarta after rising as much as 0.4 percent earlier, according to prices from local banks compiled by Bloomberg. It dropped 0.6 percent yesterday.
One-month implied volatility in the rupiah, which measures exchange-rate swings used to price options, held at 9.5 percent for a third day after falling from 13.2 percent at the end of last year. Bank Indonesia will monitor and intervene in the currency and secondary bond markets to stabilize the rupiah, according to a note posted on its website last week.
The yield on the government’s 7 percent bonds due May 2022 gained one basis point, or 0.01 percentage point, to 5.88 percent, the highest since Jan. 18, according to closing prices from the Inter Dealer Market Association.
“Statements from the central bank calmed the market earlier today but there is still lingering concern whether their plans will be effective in easing inflation,” said David Sumual, a Jakarta-based economist at PT Bank Central Asia, the nation’s biggest lender by market value.
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