MONEY MARKETS-Indonesia rates up on c.bank; dlr rates steady

Trade the News

Monday September 06, 2010 09:24:07 PM GMT

* Indonesia rise seen tempered by injection,redemption flows

* Traders estimate 140 trln rupiah inflow from maturing bills

* Australia braces for hawkish RBA on eve of rate vote

By Umesh Desai

HONG KONG, Sept 6 (Reuters) - Indonesian interbank rates edged up on Monday after banks were asked to set aside more funds with the central bank in a bid to rein in inflation but traders expect the rise to be short-lived.

Bank Indonesia raised primary bank reserve requirements to 8 percent from 5 percent on Friday signalling a concern about price pressures in southeast Asia's largest economy.

Overnight JIBOR rates rose to 6.25 percent from the previous day's 6.1-6.15 percent, while the indicative rates for one-week funds rose 15-20 bps to 6.6/6.8 percent, partly also due to holidays ahead.

But the increase is expected to be temporary as funds from central bank bill redemptions and central bank currency intervention are seen easing some of the tightness.

"I think it will be more on a short term reaction as on the FX side BI will support the USD/IDR, hence pumping IDR to the market as well," said a Jakarta based fx and rates trader.

The rupiah has gained nearly 5 percent this year following last year's 17 percent rise, on support from stock and bond portfolio inflows and foreign direct investments. On Monday, traders suspected Bank Indonesia could be buying dollars for the rupiah.

"Front end yields are spiking but these are short term in nature as we have 80 trillion SBIs maturing this month with 60 trillion to follow next month," said another Jakarta-based money markets rates trader.

"This will compensate for the 50 trillion impact from the new reserve regulations which are only effective in November."

DOLLAR RATES STEADY

The average cost of 3-month dollar funds in Singapore held steady at 0.30056 percent after easing nearly 18 bps last month.

But other rates around the region mostly rose after date from the United States showed a stronger than expected labour market.

U.S. payrolls fell for a third straight month in August, the Labor Department said, but the loss of 54,000 non-farm jobs was far less than the 100,000 expected by economists polled by Reuters, and private hiring surprised on the upside.

In Australia, rates also rose on account of job advertisements climbing to a 19-month high in August, with expectations of hawkish statements building up on the eve of the Reserve Bank of Australia's rate decision.

The RBA is widely expected to keep rates at 4.5 percent for a fourth straight month this month but most analysts expected rates to rise to around 4.75 percent by Christmas and on to 5.5 percent by the end of 2011.

Three-year bond futures slid 0.13 points at 95.44, while ten-year futures fell 0.095 points to 95.07.

One-year interest rate swaps rose 7 bps to 4.79 percent.

"Sensibly the OIS market has reviewed its forward path of RBA implied rates and now suggests 10 bps of rate hikes over the 12 months ahead," said Sean Keane, managing director at Triple T Consulting in a note.

"This is a big change from the implied 20 bp of rate cuts that the market was looking for at the end of August. The November 2010 meeting is seen as the most likely point of action, though even this meeting implies only 3bp of rate hike risk." (Reporting by Umesh Desai; Editing by Kazunori Takada)

(c) Copyright Thomson Reuters 2010. Click For Restrictions. http://about.reuters.com/fulllegal.asp