Indonesian Rupiah Strengthens to Near a Three-Year High on Rate Outlook

Indonesia’s rupiah rose on Monday, trading near the strongest level in more than three years on speculation the central bank will raise interest rates when it reviews monetary policy next month.

The currency rose for a fifth consecutive day after exchange data showed global funds bought $274 million more Indonesian shares than they sold last week. The rupiah has advanced 1.6 percent since Feb. 4, when Bank Indonesia raised its benchmark reference rate to 6.75 percent from a record-low 6.50 percent after inflation accelerated in January. 

“Bank Indonesia is expected to raise interest rates in March by 25 basis points,” said Joanna Tan, a Singapore-based regional economist at Forecast Singapore Pte. “The fund inflows into stocks are also an indication of improved investor sentiment.” 

The rupiah appreciated 0.1 percent to 8,848 per dollar as of 3:15 p.m. in Jakarta, according to data compiled by Bloomberg. It touched 8,828, the strongest level since June 2007. 

Consumer prices in Southeast Asia’s biggest economy rose 7.02 percent last month from a year earlier after having increased 6.96 percent in December, according to official data. 

Government bonds were unchanged, with the yield on the 8.25 percent note due July 2021 at 8.8 percent, the same as at the end of last week, according to midday prices by the Inter-Dealer Market Association. 

Overseas funds have increased their holdings of Indonesian government debt to Rp 198 trillion ($22.4 billion) as of Feb. 17, from Rp 195 trillion by the end of January, according to the finance ministry. 

The rupiah and Thailand’s baht led gains among Asian currencies on speculation policy makers will tolerate further appreciation as the region’s economies improve and inflationary pressure builds.