Rupiah Completes Second Annual Gain as Economy Attracts Funds

Bloomberg, by Khalid Qayum - Dec 31, 2010

Indonesia’s rupiah traded at more than a one-month high, completing its second consecutive annual gain, as the nation’s improving economy and relatively high yields helped attract funds from abroad. Bonds advanced.

Global funds bought $2.3 billion more of the nation’s shares than they sold this year through Dec. 29, helping drive the Jakarta Composite Index 46 percent higher. Foreigners boosted their holdings of Indonesian government debt by 81 percent to 195.3 trillion rupiah ($21.8 billion) as of yesterday, finance ministry data shows.

“Stable economic growth and foreign investors’ need for quality investments helped the rupiah to gain,” said Wiwig Santoso, head of treasury and markets at PT Bank DBS Indonesia in Jakarta.

The rupiah rose 0.1 percent to 8,978 per dollar as of 3:10 p.m. in Jakarta, taking this year’s advance to 4.6 percent, according to data compiled by Bloomberg. The currency earlier touched 8,963, the strongest level since Nov. 26.

Southeast Asia’s biggest economy will expand at least 6 percent this year, following growth of 4.55 percent in 2009, Bank Indonesia Governor Darmin Nasution said Dec. 27. President Susilo Bambang Yudhoyono is targeting annual growth of as much as 7.7 percent by the end of his second term in 2014, he said Aug. 16.

The central bank on Dec. 29 tightened curbs on banks’ foreign-exchange holdings and overseas borrowing to help damp capital inflows. Banks must set aside 5 percent of their total foreign-exchange holdings as reserves as of March 2011, from 1 percent currently, and limit short-term overseas borrowings to 30 percent of their capital from next month.

Foreign funds also helped the government’s benchmark bonds to gain in 2010, pushing the yields down by the most since 2006.

The yield on benchmark 11 percent note due in November 2020 fell 251 basis points to 7.71 percent, more than double the 3.37 percent for similar-maturity U.S. government debt, according to midday prices provided by the Inter-Dealer Market Association.

The rate reached 7.02 percent on Oct. 14, the lowest level since the debt was sold in May 2005.

Bank Indonesia’s benchmark interest rate of 6.5 percent compares with the Federal Reserve’s near-zero rate.

To contact the reporter on this story: Khalid Qayum in Singapore at kqayum@bloomberg.net

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

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