(Bloomberg) -- Indonesian bonds fell by the most in almost four months as a weakening rupiah raised the risk the nation’s central bank may pause on interest-rate cuts.
Benchmark 10-year bond yields rose by 10 basis points to 6.64% on Friday, the biggest advance since June 14. The rupiah is the second-worst-performing currency this week on the back of a stronger dollar as traders pared bets on another half-point rate cut by the Federal Reserve.
Read: Indonesia Bond Bulls Say Rally Will Build on Series of Rate Cuts
The rupiah’s losses may deepen further as rising Middle East tensions lift demand for haven assets like the greenback and questions over the sustainability of China’s recent rally weigh on emerging market currencies.
The sharp move in the rupiah “raises the risk that Bank Indonesia will be forced to pause its rate-cutting cycle,” Barclays analysts Brian Tan and Audrey Ong wrote in a note to clients.
“Our base case is currently for BI to cut its policy rate by 25 basis points in all three of its remaining meetings this year followed by two more moves in 2025,” the analysts said. “In the event that October is a pause, we would be inclined to revise our forecast to 25 basis-point cuts in November and December this year followed by two more moves in 2025.”
The selloff in bonds comes after last quarter’s rally in rupiah-denominated notes, the biggest since December 2020. The rupiah fell 0.4% to 15,488 per dollar on Friday.
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