Indonesia’s rupiah completed its first weekly gain in a month and bonds advanced after President Joko Widodo cut fuel subsidies and the central bank raised interest rates to soften the inflationary impact.
Widodo, known as Jokowi, announced a 2,000 rupiah ($0.16) per liter increase in the retail price of gasoline and diesel on Nov. 17, fulfilling a campaign pledge to free up state funds to spend on roads, ports, education and health. Bank Indonesia boosted its policy rate by 25 basis points to 7.75 percent at an extraordinary meeting the following day.
The rupiah rallied 0.5 percent this week to 12,150 per dollar at 4 p.m. in Jakarta, data compiled by Bloomberg show. In the offshore market, one-month non-deliverable forwards rose 0.6 percent since Nov. 14 to 12,158, 0.1 percent weaker than the spot rate. The currency gained 0.2 percent today.
The fuel-price increase is “credit-positive for the rupiah and also became quite a happy thing for investors because they can see a bit of reform momentum,” said Vishnu Varathan, an economist at Mizuho Bank Ltd. in Singapore.
The reduction in subsidies should make about 110 trillion rupiah to 140 trillion rupiah available in the state budget to spend in other areas, Finance Minister Bambang Brodjonegoro said Nov. 18. Full-year inflation will probably accelerate to 7.3 percent, he said. Consumer prices rose 4.83 percent in October from a year earlier, official data show.
The yield on the 8.375 percent government bonds due March 2024 dropped 13 basis points, or 0.13 percentage point, this week to a one-year low of 7.80 percent, according to data from the Inter Dealer Market Association. It declined four basis points today.
Bank Indonesia set a fixing used to settle the rupiah forwards at 12,161 per dollar, compared with 12,206 on Nov. 14.
original source: http://www.bloomberg.com/news/2014-11-21/indonesian-rupiah-heads-for-weekly-gain-after-fuel-subsidies-cut.html