Indonesia's Market Rout Worsens Before Central Bank Meeting

(Bloomberg) -- A selloff in Indonesia’s markets worsened a day before the central bank’s policy decision is due, raising questions over how much more Governor Perry Warjiyo needs to do to fend off outflows.

The rupiah fell as much as 0.8 percent to its weakest since October 2015, while the benchmark stock index sank by more than 2 percent at one stage. Government bonds also declined.

Economists predict Warjiyo and his policy board will raise interest rates for a third time in six weeks on Friday, as Indonesia gets caught in the crosshairs of an emerging-market rout. Benefits from the two earlier hikes and intervention in the currency and bond markets have been eroded as trade tensions between the U.S. and China sapped appetite for risk assets.

“The central bank has been intervening in both selling dollars and buying local bonds in the secondary market to support it -- it has been more hawkish than we thought it would be,” said Guillermo Osses, head of emerging-market debt strategies at Man GLG. However, “it’s still a market under pressure,” he said.

The rupiah fell to 14,288 against the dollar, taking the year-to-date decline to 5 percent. The slippage in the rupiah’s forward rate spurred the equity market selloff, according to Evan Lie Hadiwidjaja, head of equity research at Sinarmas Sekuritas PT.

“I’ve never seen a forward rate of rupiah this high before,” said Hadiwidjaja. Stocks may extend a decline through Friday, he said.

To contact the reporters on this story: Ruth Carson in Sydney at rliew6@bloomberg.net;Kintan Andanari in Singapore at kandanari@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds

©2018 Bloomberg L.P.