Indonesia’s Jakarta Composite Index Drops 2.8%, Rupiah Slides 

Friday, 21 January 2011

The Jakarta Globe

The Jakarta Composite index fell 2.8 percent to 3,356.83 as of 9:31 a.m. local time. The measure has fallen 11 percent since its Dec. 9 record as faster inflation raised concern the central bank has fallen behind regional neighbors in lifting interest rates. A drop of 10 percent or more from a recent high signifies a so-called correction to some analysts and investors. 

The rupiah also fell, headed for a third weekly decline, as overseas funds trimmed holdings of the nation’s assets on concern inflation will quicken.

Global funds sold $425 million more local stocks than they bought this month, according to exchange data. Offshore ownership of Indonesian government bonds fell to Rp 191.34 trillion ($21.1 billion) as of Jan. 14 from 198.75 trillion on Jan. 7, finance ministry data show.

“We’ve seen quite a bit of sell-off in the Indonesian stock and bond markets,” said Gundy Cahyadi, a Singapore-based economist at Oversea-Chinese Banking Corp. “The market is seemingly looking at whether or not Bank Indonesia will make a rate hike to manage inflation. Sentiment will continue to be quite weak for the rupiah.”

The rupiah declined 0.1 percent today and this week to 9,073 per dollar as of 8:53 a.m. in Jakarta, according to data compiled by Bloomberg. The currency traded at 9,105 earlier, the weakest level in a week.

Bank Indonesia left its policy rate unchanged for a 17th consecutive meeting on Jan. 5 even as consumer prices rose 6.96 percent, the fastest pace in 20 months, in December. The central bank will review its lending rate next on Feb. 4.

Ten-year government bond yields rose to the highest level since May 28 yesterday. The rate on the 8.25 percent note due July 2021 surged 51 basis points to 9.036 percent, according to the Inter Dealer Market Association.