Indonesian bonds drop on rate concern

Indonesian bonds drop on rate concern

Bloomberg, Kuala Lumpur

Indonesia's rupiah-denominated bonds fell, the biggest fluctuation of any government debt market on Monday, on concern the central bank will keep raising interest rates this year to curb inflation.

Consumer prices in Southeast Asia's largest economy probably rose 13.1 percent in October from a year ago, according to the median forecast of 12 economists in a Bloomberg New survey.

The government is scheduled to report the figure tomorrow. Prices rose 9.1 percent in September.

"Bond yields haven't fully reflected concern about inflation running at 13.5 to 14 percent," said Gautama Adidharma, head of fixed-income sales at Trimegah Securities in Jakarta.

"We are asking our clients to hold back purchases until the second quarter next year."

The yield on the 12.25 percent bond due in July 2007 rose 36 basis points, or 0.36 percentage point, to 13.93 percent as of 3:50 p.m. in Jakarta, according to prices supplied by Deutsche Bank AG.

The price fell 0.5 percent, or Rp 5,000 per Rp. 1 million face amount, to Rp 97.50.

Bank Indonesia, the central bank, raised its policy rate, which it uses to guide yields at its bill sales, by 1 percentage point to 11 percent on Oct. 4, taking it up from 8.5 percent at the start of August.

The central bank may increase the rate to 12 percent as soon as tomorrow after the inflation report, Adidharma said.

"There's a possibility we'll increase the interest rate," Bank Indonesia Governor Burhanuddin Abdullah said in a speech in Jakarta on Oct. 24.

"We are keeping tight monetary policy."

September's inflation rate was the highest in 33 months.

President Susilo Bambang Yudhoyono's government on Oct. 1 doubled retail fuel prices to cut subsidies, save money and keep the budget deficit at about 0.9 percent of gross domestic product.

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