Bonds, stocks, rupiah fall as oil prices keep rising

Bonds, stocks, rupiah fall as oil prices keep rising

Bloomberg, Jakarta

Indonesian five-year bonds fell, the biggest fluctuation of any government debt market on Friday, and the rupiah and the stocks followed suit after a gain in oil prices to another record increased concerns that inflation will quicken.

Rising fuel prices have helped push Indonesian debt down for six months. Five-year government bond yields, which move inversely to prices, have risen more than 3 percentage points since January to their highest since 2003.

"The high oil price is worsening the inflationary outlook and making people more negative about holding bonds," said Antonio Yongnata, who oversees US$110 million of assets at Citigroup Asset Management in Jakarta.

"We are likely to see continued selling until oil prices begin to stabilize." He is holding more money than usual in cash, he said.

The yield on the five-year local-currency bond rose 13 basis points, or 0.13 percentage point, to 12.58 percent as of 4:14 p.m. local time, according to the Inter Dealer Market Association in Jakarta.

The price of the 13.15 percent bond due in March 2010 fell 0.44, or 4,420 rupiah per 1 million rupiah face amount, to 101.916.

Meanwhile, the Jakarta Composite Index dropped 14.003, or 1.2 percent, to 1153.969 at close, the lowest since July 20. All of the benchmark's nine industry groups declined. The index dropped for a second week, losing 1.7 percent, its biggest weekly slide since the five days to July 8.

The rupiah this week also fell 0.7 percent to 9,813 against the dollar, the biggest decline since the five days ended July 1.

Crude oil futures rose above $66 for the first time to a record $66.13 in electronic after-hours trading on the New York Mercantile Exchange. Oil prices have risen 45 percent during the past year.

Higher oil prices "will have an impact on inflation and interest rates," Indonesian Trade Minister Mari Pangestu said in an interview in Singapore. "We can still expect inflation to be below 10 percent, maybe 8 percent. But it depends on the amount of fuel price increases."

Inflation accelerated at an 7.84 percent annual rate in July from 7.42 percent a month earlier, the Central Statistics Bureau said on Aug. 1. It was the fastest since April. Inflation erodes the value of a bond's fixed payments.

Indonesia has to import a third of the fuel it uses.

Indonesia's central bank raised its benchmark interest rate by a quarter percentage point to 8.75 percent on Aug. 9.

"Bank Indonesia raised the policy rate because of expectations of higher inflation," Bank Indonesia's spokesman Halim Alamsyah said after the central bank's monthly board meeting in Jakarta.

Minister of Finance Jusuf Anwar said that the government is reviewing its pricing policies, such as those on fuel, because foreign reserves have dropped to an "alarming level."

"Our foreign reserves have been used to fund oil" purchases, Anwar told reporters today. The government has been absorbing oil price increases to keep retail rates in check.

Indonesia's net foreign reserves declined to $32.5 billion on Aug. 5 from a six-year high of $37.4 billion on April 2 last year, according to data from the central bank.

The government hasn't passed on price increases because it wants to keep inflation at 8 percent for the year and ensure it's able to meet the economic growth target of 6 percent.