Indonesian Rupiah Drops on Europe Slowdown Concern; Bonds Gain

Indonesia’s rupiah declined the most in more than a week after data showed services output in Europe slowed, damping demand for emerging-market assets. Government bonds advanced.

The MSCI Asia Pacific Index snapped six days of gains after reports showed services output in the euro area shrank for a fifth month in June, unexpectedly contracted in Germany and increased less than estimated in the U.K. Economists predict the European Central Bank will reduce borrowing costs when it meets for a policy meeting today.

“There were a number of unfavorable data from Europe, turning the market wary,” said Putu Andi Wijaya, a foreign-exchange dealer at PT Bank Rakyat Indonesia in Jakarta. “We need to see if foreign investors halt their recent inflows to the stock and bond markets, which would soften the rupiah.”

The rupiah weakened 0.2 percent to 9,385 per dollar as of 4:56 p.m. in Jakarta, the most since June 26, prices from local banks compiled by Bloomberg show. One-month implied volatility, which measures exchange-rate swings used to price options, held at 8.25 percent.

Global funds added 2.48 trillion rupiah ($265 million) to their government bond holdings this week through July 3 and bought $165 million more local stocks than they sold so far this week, finance ministry and exchange data show.

The yield on the government’s 7 percent bonds due May 2022 declined three basis points, or 0.03 percentage point, to 6.04 percent, the lowest level since May 3, according to prices from the Inter Dealer Market Association.

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