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NEWS UPDATES 21 October 2010

Indonesia's Rupiah Gains on Optimism

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Indonesia's rupiah gained for the first time this week, nearing a three-year high, on speculation relatively high yields will draw more funds to Southeast Asia's biggest economy.

The currency has advanced 5.1 percent this year as overseas investors pumped $2.2 billion into the nation's stocks. The central bank said on Oct. 5 it expects gross domestic product to increase 6 percent to 6.3 percent in 2010, and between 6 percent and 6.5 percent next year.

The central bank may buy dollars to limit rupiah gains, according to Joanna Tan, a regional economist at Forecast Singapore Pte.

"The economic fundamentals are still pretty strong for Indonesia," said Tan. "Bank Indonesia will intervene if the currency trades near the 8,900 level. The currency is consolidating at this level and may trade between 8,915 and 8,950 level today."

The rupiah rose 0.1 percent to 8,933 per dollar as of 9:10 a.m. in Jakarta, according to Bloomberg data. It reached 8,900 on Sept. 30, the strongest level since June 2007. Indonesia's benchmark interest rate of 6.5 percent compares with near-zero rates in the United States and Japan.

Foreigners increased their holdings of government bonds by 78 percent this year to Rp 191.7 trillion ($21.5 billion), according to the finance ministry's Web site.

Bank Indonesia plans to offer term deposits with longer maturities of three to nine months, Dyah Nastiti Makhijani, a spokeswoman at the central bank, said on Tuesday, as authorities seek to reduce volatility in the rupiah.

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