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Indonesia Stocks Drop to Seven-Week Low as Oil Gain Fans Inflation Concern

Indonesian stocks fell to the lowest level in almost seven weeks on concern inflation will accelerate as gains in crude oil added pressure on the government to raise subsidized fuel prices.

The Jakarta Composite Index (JCI) dropped 1.6 percent to 3,894.56 at the close in Jakarta, the lowest level since Jan. 9. About five stocks fell for each that rose. PT Astra International (ASII), Indonesia’s largest auto retailer, fell 3.7 percent, while PT Bank Mandiri (BMRI), the biggest bank by assets, declined 3.2 percent.

Crude rose for a seventh day to the highest level in more than nine months, boosting concerns inflation may accelerate after President Susilo Bambang Yudhoyono said Feb. 22 subsidized fuel prices must be raised. Inflation this year may exceed the central bank’s target of a maximum 5.5 percent if the government increases the price by more than 1,000 rupiah (11 cents) a liter, Bank Indonesia Governor Darmin Nasution said yesterday.

“It’s possible that the fuel-price increase will be above expectations,” Akbar Syarief, who helps manage about $154 million in assets at PT MNC Asset Management in Jakarta, said today. “Investors will have to rebalance portfolios, selling stocks that are inflation- and interest-rate sensitive.”

Indonesia’s benchmark index has risen 1.9 percent this year, Asia’s fourth-worst performer after Sri Lanka, Malaysia and Mongolia. The gauge trades at 13.2 times estimated earnings, the lowest relative to the MSCI Asia Pacific Index (MXAP) since April 2010.

Fuel Imports

Southeast Asia’s biggest economy imports about 27 percent of its domestic fuel demand, according to data from PT Pertamina (PERT), Indonesia’s state oil company. Pertamina sells subsidized low-octane gasoline for 4,500 rupiah a liter, compared with 9,150 rupiah a liter for the price of its non- subsidized high-octane fuel.

A decision on the fuel-price increase will depend on parliamentary discussions on a revised 2012 state budget scheduled to begin in March, Coordinating Minister for the Economy Hatta Rajasa said yesterday.

Higher fuel costs may accelerate inflation after price growth slowed for a fifth straight month in January. Bank Indonesia cut its benchmark interest rate to a record low of 5.75 percent on Feb. 9 to boost economic growth as exports slowed on weaker global demand. Bank Indonesia targets inflation this year of 3.5 percent to 5.5 percent.

Crude oil rose as much as 0.8 percent to $108.70 a barrel in electronic trading in New York.

Price Increases

“Fuel-price hikes tend to hurt consumer sentiment and lead to weaker GDP growth in the short term,” Kun Lung Wu, a Singapore-based analyst at Credit Suisse Group AG, wrote in a note yesterday. “Depending on the magnitude of any fuel-price increase, Bank Indonesia might need to raise the policy rate later this year,” Wu wrote.

Astra shares fell the most since Dec. 15 to 68,250 rupiah. Mandiri declined to 6,100 rupiah, the lowest close since Oct. 7.

PT Unilever Indonesia (UNVR), the nation’s biggest detergent maker, fell 1.9 percent to 18,200 rupiah, while PT Gudang Garam (GGRM), a cigarette producer, retreated 3.2 percent to 51,950 rupiah, the lowest close since Oct. 4.

To contact the reporter on this story: Berni Moestafa in Jakarta at bmoestafa@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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