Indonesian stock index falls to 4-week low

Indonesian stock index falls to 4-week low

Soraya Permatasari, Bloomberg/Jakarta

Indonesia's key stock index fell to a four-week low, paced by lenders such as Bank Danamon and Bank Rakyat Indonesia, on concern the weakening rupiah will force the central bank to further boost interest rates.

"Banks' profitability will be hurt this year" as higher rates will increase costs for lenders, said Darmawan Halim, a Jakarta- based analyst at Mandiri Securities, who rates the sector as "underweight."

The Jakarta Composite Index fell 27.29, or 2.6 percent, to close at 1,016.75, bringing its decline to 4.7 percent in the past three days.

The benchmark is at its lowest since Aug. 29 when a 5.2 percent slide sent the market to an eight-month low. The rupiah on that day had its biggest drop in four years.

A measure tracking financial stocks accounted for 29 percent of the decline, the second-biggest drag on the index. Danamon, the nation's fifth largest lender, lost Rp 200, or 5 percent, to Rp 3,825. Smaller rival Bank Niaga dropped Rp 15, or 3.9 percent, to Rp 370.

Bank Mandiri, Indonesia's largest lender by assets, fell Rp 40, or 2.9 percent, to Rp 1,330. Bank Rakyat lost Rp 125, or 4.8 percent, to Rp 2,475.

Bank Indonesia lifted its benchmark rate to 10 percent on Sept. 6, its third increase in four weeks, to help stop the currency's slide and rein in inflation.

The yield on one-month central bank bills, a benchmark for deposit rates in Indonesia, was kept at 10 percent for a third week at an auction yesterday, the highest since June, 2003.

The currency this year has so far declined 9.5 percent, the worst performer among the 15 Asia-Pacific currencies tracked by Bloomberg, as crude prices surged 56 percent and the cost of subsidizing fuel for the poor rose.

The rupiah declined for a sixth day, losing 0.1 percent to 10,229 per dollar. It is the world's worst performing currency over the past five working days.

Indonesia, the only member of OPEC that is a net oil importer, is planning to reduce oil subsidies. That is expected to stop the drain on government coffers and support the rupiah but result in higher prices of gasoline and cooking fuel.

"I'm staying clear of Indonesia at the moment because plans to increase fuel prices will push up inflation," said Kelvin Miranda, who helps manage $210 million at Asian Asset Management Sdn. in Kuala Lumpur.

"Such a move may also trigger social unrest." The government raised its forecast for inflation this year to 8.6 percent from 7.5 percent estimated in June.

PT Astra International, the nation's biggest auto seller, fell Rp 450, or 4.7 percent, Rp 9,050. PT Gudang Garam, the biggest cigarette maker, slid Rp 500, or 4.5 percent, to Rp 10,700. Higher fuel costs may damp consumer spending.

A parliamentary panel Sept. 20 approved a government proposal to cap subsidies at Rp 89.2 trillion (US$8.7 billion) this year. The figure is less than the Rp 138.6 trillion President Susilo Bambang Yudhoyono estimated on Aug. 31.

PT Gajah Tunggal, an Indonesian tiremaker partly owned by Michelin & Cie, Europe's largest tiremaker, fell Rp 50, or 8.8 percent, to Rp 520, its biggest decline since Aug. 29.

Elsewhere, Bank Central Asia fell after it resumed trading following the government's sale of its 5.02 percent remaining stake in the nation's second-biggest lender. Bank Central Asia, locally known as BCA, declined Rp 50, or 1.4 percent, to Rp 3,425.

The government raised Rp 2.19 trillion from selling the stake to investors on Wednesday at Rp 3,550 a share, a 2 percent premium to the Rp 3,475 closing price on Sept. 20.