Bloomberg News

Rupiah Drops to Six-Week Low as Europe Crisis Deters Risk-Taking

January 09, 2012

Jan. 9 (Bloomberg) -- Indonesia’s rupiah dropped to a six- week low on concern Europe’s debt crisis is slowing global growth, cutting demand for emerging-market assets.

The MSCI Asia-Pacific Index of regional stocks fell before a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy today to flesh out a new rulebook for fiscal discipline negotiated at a Dec. 9 summit. Bank Indonesia sees room to reduce borrowing costs if needed, Deputy Governor Hartadi Sarwono said in Singapore last week before a policy-rate review on Jan. 12. In November, the central bank unexpectedly reduced the rate by half a percentage point.

“Europe’s debt crisis is causing risk aversion,” said Radhika Rao, an economist at Forecast Pte in Singapore. “We are not expecting any rate cut by Bank Indonesia this quarter. The last rate cut was premature.”

The rupiah dropped 1.2 percent to 9,208 per dollar as of 9:22 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It touched 9,230, the weakest level since Nov. 29.

The central will keep the reference rate unchanged at 6 percent this week, according to eight of 11 economists surveyed by Bloomberg. Three predict a 25-basis point reduction.

The yield on the government’s 7 percent bonds due May 2022 rose 11 basis points, or 0.11 percentage point, last week to 6.21 percent, according to prices from the Inter-Dealer Market Association.

--Editors: Andrew Janes, James Regan

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

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net


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