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Rupiah, Bonds Drop on Concern Europe’s Debt Crisis Is Spreading

Indonesia’s rupiah dropped the most in three months and 20-year bonds posted the worst performance since June, as concern about the creditworthiness of some European nations curbed demand for emerging-market assets.

Currencies weakened across Asia’s developing economies, global stocks declined and the euro slid to a one-year low on speculation a debt crisis that began in Greece is spreading. Greece, the recipient of a planned 110 billion euro ($143 billion) bailout from the European Union and International Monetary Fund, had its credit rating cut to junk last week by Standard & Poor’s, which also downgraded Spain and Portugal.

“It is not unusual to see the rupiah decline given the global developments and the European and U.S. stocks getting hit,” said Stephen Schwartz, chief economist for Asia at BBVA in Hong Kong. “But I don’t see anything of concern for the currency in the longer-term.”

The rupiah fell 0.8 percent to 9,108 per dollar as of 4:30 p.m. in Jakarta, according to data compiled by Bloomberg. The currency will strengthen to 8,975 this year, according to the median forecast of analysts surveyed by Bloomberg. The nation’s benchmark stock index dropped 3.8 percent.

The central bank kept its benchmark interest rate at a record-low for a ninth straight month today. It maintained the rate at 6.5 percent, which was predicted by all 20 economists in a Bloomberg News survey.

Bonds Slump

Bank Indonesia aims to keep the rupiah at about 9,000 per dollar, Senior Deputy Governor Darmin Nasution said last week. Policy makers can try to influence exchange rates by buying or selling currencies.

The World Bank today said Indonesia’s Finance Minister Sri Mulyani Indrawati was selected to be a top adviser to President Robert Zoellick. She will join the lender in June.

Twenty-year local-currency bonds fell, driving up yields by the most since June 2009.

Royal Bank of Scotland Group Plc advised investors to sell 20-year notes on concern the debt crisis in Europe will slow a global economic recovery, reducing demand for riskier assets, analysts Woon Khien Chia and Sanjay Mathur wrote in a research note today.

Indonesia’s local-currency debt is the best performing in Asia this year, returning 10.4 percent, according to indexes compiled by HSBC Holdings Plc.

“Given the negative correlation of Indonesian rupiah bonds to risk aversion and the strong bout of short-covering on the dollar against rupiah positions, we suggest trimming down duration to guard against further swings in risk appetite,” the report said.

The yield on the 10.5 percent security due in August 2030 climbed 29 basis points to 10.12 percent, according to quotes provided by the Inter-Dealer Market Association. The price dropped 2.5869, or 25,869 rupiah per 1 million rupiah face amount, to 103.1787. A basis point is 0.01 percentage point.

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