Indonesia bonds rise on slowing growth

Indonesia bonds rise on slowing growth

Bloomberg, Kuala Lumpur/Jakarta

Indonesia's local-currency bonds gained, the biggest fluctuation of any government debt market today, on signs growth faltered in the third quarter as consumers held back spending because interest rates rose.

The economy grew 5.1 percent in the three months to Sept. 30 from a year earlier, according to a Bloomberg survey, from 5.5 percent in the second. The central bank may temper rate increases this year after Coordinating Minister for the Economy Aburizal Bakrie said consumer prices in November may rise at less than half the 17.9 percent pace of last month.

"There's a short-term interest in bonds because growth may be slower going into next year," said Ricky Dahlan, head of trading at PT Trimegah Securities in Jakarta. "Consumers lacked optimism and wouldn't want to see higher rates because it affects the economy."

The yield on the 12.25 percent bond due in July 2007 fell 18 basis points, or 0.18 percentage point, to 13.95 percent as of 2:45 p.m. local time, according to prices supplied by Deutsche Bank AG in Jakarta. It may drop to 13.8 percent in the next two days, Dahlan said.

The price rose for a second day, adding 0.25, or Rp 2,500 per Rp 1 million face amount, to Rp 97.50. Bond prices move inversely to yields.

The report's release, scheduled for Tuesday, has been delayed until next week because of internal meetings, Irlan Indrachayana, a spokesman for the Central Statistics Agency said in Jakarta. He didn't give a new date for the announcement.

Slower growth "is one possibility" why the statistics bureau is delaying the GDP announcement, said Winang Budoyo, an economist at Mandiri Sekuritas in Jakarta.

Bank Indonesia has raised domestic rates five times since July to curb inflation, taking the key rate used as a reference for bill sales to 12.25 percent, crimping consumer spending on items such as cars.

Car sales fell to 44,030 units in September from 50,608 in August, the first drop since May, according to a report from the Association of Indonesian Automotive Manufacturers issued by PT Astra International, the nation's biggest automaker.

"At the start of the year, consumption was expected to be the backbone of the economy," said Budoyo. "Now purchasing power has been reduced, it's not going to be the case."

Budoyo expects the benchmark interest rate to top 14 percent this year and expects Bank Indonesia to start cutting rates from June, to 11 percent by end 2006.

Sentiment toward Indonesian bonds has improved as the government has pledged it will take action on reducing fuel subsidies and as oil prices retreated from record highs.