Indonesia’s Rupiah, Bonds Decline as Europe Crisis May Worsen

Indonesia’s rupiah and government bonds dropped for a second day as concern Europe’s debt crisis will worsen damped demand for riskier assets.

The Jakarta Composite Index of shares fell 0.5 percent after losing 1.8 percent yesterday, the most in a month, as overseas investors sold $14 million more local stocks than they bought, according to exchange data. Moody’s Investors Service revised its rating outlooks for Germany, the Netherlands and Luxembourg to negative on “rising uncertainty” over the credit crisis in the euro area, it said in a statement yesterday.

“The rupiah is being driven by another round of risk aversion,” said Artanavaro Gasali, the Jakarta-based head of global markets at PT Bank ICBC Indonesia. “Germany is among the most stable and powerful economies in the euro area, so its downgrade definitely caused some concern.”

The rupiah weakened 0.4 percent to 9,493 per dollar as of 3:36 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. One-month implied volatility, which measures exchange-rate swings used to price options, was steady at 8 percent.

The yield on the government’s 7 percent bonds due May 2022 rose one basis point, or 0.01 percentage point, to 5.82 percent, according to prices from the Inter Dealer Market Association. That was the highest level in a week.

Bank Indonesia received approval from the People’s Bank of China to invest in the interbank Chinese bond market, according to statements from both central banks yesterday.

“Aside from diversifying its holdings, Bank Indonesia may wish to invest in yuan-denominated notes for the prospect of currency gains ahead of 2015, when the yuan will be internationalized,” Gasali said.

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