MONEY MARKETS-Short Indonesia bond yields drop on rate pause hopes

* Jakarta may postpone rate hikes – Standard Chartered

* Rupiah rises above 8,700 per dollar level, more gains seen

HONG KONG, April 1 (Reuters) – Short-dated Indonesian local
currency bonds dipped to nearly their lowest levels so far this
year on Friday after inflation unexpectedly slowed in March,
reducing pressure on the central bank to raise interest rates at
a review this month.

* Annual inflation in March slowed to 6.65 percent in March
from 6.84 percent in February, prompting some analysts to defer
their forecasts for the next quarter-point rate rise to later in
the year. [ID:nL3E7CV0NF]

* Likely low inflation in April and May should encourage the
central bank to postpone the rate hike until the third quarter
or even to the end of the year, Eric Alexander Sugandi, an
economist at Standard Chartered Bank said.

* Two-year yields (0#IDBMK=: Quote, Profile, Research) fell by 14 basis points to 7.21
percent on Friday, its lowest since early January after the data
surprised the general market consensus which was expecting
higher inflation, traders said.

* Short-dated bonds also benefited from the stronger rupiah.
The currency rose for the second consecutive month in
March, taking its year-to-date gains to more than 3.5 percent
and raising hopes that a stronger currency would check imported
inflation, especially from high oil prices.

* Though Indonesia’s local currency bonds have been the
poster child for foreigners in recent months, they were dumped
heavily at the start of the year as inflationary fears gripped
rate markets, but a surprise interest rate increase in February
calmed markets and investors have stepped back in since then.

* Foreign investors have returned to buy a total of more
than 11 trillion rupiah in Indonesian government bonds in March
taking their net ownership to more than 31 percent, the most
heavily owned local currency bond market in the region.

* Total returns of Indonesian local currency bonds have
been largely flat so far this year after posting 24 percent
returns in 2010 and 36 percent in 2009.

* Investors also took confidence from the relative ease by
which the rupiah punched through the 8,700 per dollar
level with little central bank intervention.

(Reporting by Saikat Chatterjee; Editing by Kim Coghill)

MONEY MARKETS-Short Indonesia bond yields drop on rate pause hopes