Rupiah Trades Near Lowest Level Since 2009 on Europe; Bonds Fall

Indonesia’s rupiah traded near the lowest level since 2009 and bonds declined after global investors reduced holdings of the nation’s assets on concern Europe’s debt crisis will worsen.

Overseas funds sold $350 million more local stocks than they purchased last week and withdrew 930 billion rupiah ($100 million) from investments in government debt in the four days through May 24, official data show. Standard & Poor’s cut the credit ratings of three Spanish banks to junk on May 25. Greece’s New Democracy party, which supports plans for a European Union-led bailout, placed first in all six opinion polls published on May 26, ahead of a June 17 election.

“The market still swings from risk-on to risk-off,” Putu Andi Wijaya, a foreign-exchange dealer at PT Bank Rakyat Indonesia in Jakarta. “Spain is a worry again and we still can’t hope for much from Europe. Markets may improve a little and then decline even steeper.”

The rupiah traded at 9,479 per dollar as of 4:54 p.m. in Jakarta, after closing at 9,474 last week, according to prices from local banks compiled by Bloomberg. The currency reached 9,534 earlier, the weakest level since December 2009.

One-month implied volatility, which measures exchange-rate swings used to price options, was unchanged at 16.5 percent, the highest since Oct. 5.

“Demand for dollars remains strong and despite Bank Indonesia’s efforts to hold the line, I believe they will struggle,” Patrick Perret-Green, head of foreign-exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, wrote in a e-mailed note to clients today. “Further selling will place the rupiah under more strain.”

Bank Indonesia

Bank Indonesia doesn’t want the rupiah to weaken too fast and continues to intervene in the currency market, deputy governor Hartadi Sarwono said on May 16, adding that it will use its “ammunition” carefully.

Benchmark 10-year bonds dropped for a third day, with the yield climbing two basis points, or 0.02 percentage point, to 6.55 percent, according to closing prices from the Inter Dealer Market Association.

“We didn’t get a sense of panic dollar buying and notably the bond market was comparatively calm,” Tim Condon, chief Asia economist at ING Financial Markets in Singapore wrote in a report today. “We believe Bank Indonesia will intervene as needed to maintain calm and we don’t expect this will entail macroprudential measures,” such as capital controls, he wrote.

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