Feb. 27 (Bloomberg) -- Indonesia’s rupiah dropped to the lowest level in six weeks and bonds declined on concern government plans to reduce fuel subsidies will stoke inflation.
The Jakarta Composite Index of shares fell for a fourth day after Bank Indonesia Governor Darmin Nasution said on Feb. 23 that inflation may exceed the central bank’s target of a maximum of 5.5 percent this year if fuel prices are raised by 1,000 rupiah ($0.11) per liter or more. Overseas funds sold $99 million more local stocks than they bought on Feb. 24, exchange data show.
“There’s a bit of concern on the fuel policy and how it’s going to affect inflation,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. “The outflow from equities” was because of that concern, he said.
The rupiah weakened 0.6 percent to 9,172 per dollar as of 3:13 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency touched 9,214 earlier, the lowest level since Jan. 16. Losses will probably be limited as Bank Indonesia may intervene, said Supaat.
“The central bank is mostly concerned about volatility, not so much about targeting a certain level,” he said. “They’re uncomfortable about sharp, rapid shifts in the currency.”
The yield on the government’s 7 percent bonds due May 2022 rose 11 basis points, or 0.11 percentage points, to 5.57 percent, according to midday prices from the Inter Dealer Market Association.
Inflation slowed for a fifth straight month in January, easing to 3.65 percent, official data show.
The decision whether to increase subsidized fuel prices will depend on the government’s discussion with the parliament to revise the 2012 state budget in March, Coordinating Minister for the Economy Hatta Rajasa said on Feb. 23. Jero Wacik, the energy and mineral minister, said the government is proposing an increase of 500 rupiah to 1,500 rupiah per liter.
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