Bloomberg News

Indonesian Rupiah, Bonds Fall on Europe’s Debt Crisis Concern

November 15, 2011

Nov. 15 (Bloomberg) -- Indonesia’s rupiah fell for the first time in three days and bonds declined after Italy’s rising borrowing costs fanned concern Europe’s debt crisis will worsen, curbing demand for emerging-market assets.

The MSCI Asia-Pacific Index of shares snapped a two-day gain after Italy sold 3 billion euros ($4.1 billion) of five- year bonds at a yield of 6.29 percent yesterday, the highest since June 1997. Bank Indonesia unexpectedly cut its benchmark interest rate by 50 basis points to 6 percent last week to boost economic growth. The central bank may reduce the rate by another 25 basis points in the first quarter of 2012, said Tetsuo Yoshikoshi, a senior economist at Sumitomo Mitsui Banking Corp.

“The developments in Europe overnight have caused risk reduction,” said Singapore-based Yoshikoshi. “It is difficult to bet on the rupiah now as investors are not sure what Bank Indonesia is doing with interest rates.”

The rupiah slipped 0.4 percent to 8,998 per dollar as of 4 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. The currency has slid 1.6 percent this month and reached 9,041 on Nov. 10, the weakest level since Sept. 26. The central bank said in October it has sufficient foreign-exchange reserves to defend the currency.

Bank Indonesia lowered its 2012 economic growth forecast to 6.5 percent from a previous estimate of 6.7 percent as a slowing global economy may reduce demand for exports, Perry Warjiyo, director of economic research at the central bank, said in Jakarta today.

The yield on the government’s benchmark 8.25 percent bonds due July 2021 rose five basis points, or 0.05 percentage point, to 6.24 percent today.

Indonesia sold $1 billion of Islamic bonds due 2018 at a yield of 4 percent, less than half the rate at which it sold its debut dollar sukuk in 2009.

The yield on benchmark 8.8 percent bonds maturing April 2014 increased five basis points to 3.40 percent today, according to Royal Bank of Scotland Group Plc prices.

--Editors: Greg Ahlstrand

To contact the reporter on this story: Khalid Qayum in Singapore at kqayum@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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