Indonesian Rupiah Weakens on European Downgrades; Bonds Advance

Indonesia’s rupiah fell after Moody’s Investors Service warned that the U.K. and France may lose their top credit ratings after downgrading six European nations including Italy, Spain and Portugal. Bonds gained.

The rupiah extended this month’s loss to 0.6 percent as overseas investors sold $147 million more local stocks than they bought, paring net purchases this year to $122 million, exchange data show. Moody’s revised its outlook on the U.K. and France’s ratings to “negative” yesterday.

“The near-term volatility is the result of the situation in Europe,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “Going forward, it looks like there will be strong support from the resilient domestic market” because the economy remains strong, he said.

The rupiah dropped 0.6 percent to 9,056 per dollar as of 3:20 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. Analysts in a Bloomberg News survey predict the currency will decline a further 0.5 percent to 9,100 by the end of this quarter.

Southeast Asia’s largest economy grew 6.5 percent last year in the biggest gain since before the Asian financial crisis. Indonesia will expand 6.5 percent in the first quarter from a year earlier, the central bank forecast on Feb. 9.

The government will probably lower its 2012 economic expansion target from 6.7 percent as Europe’s debt crisis clouds global economic prospects, Vice Finance Minister Anny Ratnawati said today in Jakarta. She didn’t say what the new target will be.

The yield on the 7 percent bonds due May 2022 declined six basis points, or 0.06 percentage point, to 5.11 percent, according to midday prices from the Inter Dealer Market Association.

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