The Jakarta Composite index fell below the 4,000 level for the first time in a year and rupiah forwards tumbled on speculation the government hasn’t done enough to narrow a record current-account deficit.
The benchmark share gauge dropped for a fourth day and the rupiah touched the weakest level since April 2009 after an Aug. 23 policy package, which was aimed at narrowing the shortfall to stem a rout in Indonesian markets amid concern the Federal Reserve will cut stimulus. The 10-year bond yield reached the highest level since February 2011.
The Jakarta Composite index fell 3.7 percent to 3,967.842, the lowest close since June 29, 2012. The gauge has dropped 14 percent in August, poised for its worst month since October 2008. PT Bank Mandiri, the country’s largest lender by assets, dropped 6.3 percent, heading for its lowest close since June 2012.
“The government’s policies didn’t live up to market expectations,” said Akbar Syarief, a fund manager at PT MNC Asset Management in Jakarta, which oversees about $485 million.
Indonesia will relax mineral-export quotas, introduce a simpler investment-permit process and raise taxes on luxury-goods imports, Coordinating Minister for the Economy Hatta Rajasa said Aug. 23. The central bank will extend foreign-exchange term deposit tenors and ease rules for foreign-exchange transactions, Governor Agus Martowardojo said the same day.
UBS AG cut its economic expansion estimate to 5.6 percent this year and 5.2 percent in 2014, from 6 percent and 5.9 percent, according to a research note yesterday by Singapore-based economist Edward Teather. Bank Indonesia will raise its reference rate by another 50 basis points this year, he wrote. The authority increased its policy rate by 75 basis points to 6.5 percent over June and July before pausing this month.
PT Bank Rakyat Indonesia declined 2.2 percent and PT Bank Central Asia, Indonesia’s largest lender by market capitalization, fell 1.7 percent. Banks are being affected by higher interest rates and a slower loan growth outlook, MNC’s Syarief said.
One-month non-deliverable forwards on the rupiah slid 2.8 percent to 11,733 per dollar, data compiled by Bloomberg show. The contracts were 6.9 percent weaker than the spot rate, which declined 0.7 percent to 10,925, according to prices from local banks. That’s the biggest discount since 2008.
“What’s happening to the forwards can drive expectations for the spot rate,” said Nurul Eti Nurbaeti, Jakarta-based head of treasury research at PT Bank Negara Indonesia. “Dollar demand for imports still outstrips supply, while exporters are preferring to hold onto their dollars.”
A fixing used to settle the forwards set by the Association of Banks in Singapore was 11,196 per dollar today, compared with 11,052 yesterday. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 187 basis points, or 1.87 percentage points, to 19.75 percent, data compiled by Bloomberg show.
The yield on government bonds due May 2023 climbed 19 basis points to 8.71 percent, prices from the Inter Dealer Market Association show. The finance ministry raised 12 trillion rupiah ($1.1 billion) in a government bond auction today, more than its original target of 8 trillion rupiah.