Indonesia Stock Index Falls for Third Day as Inflation May Exceed Target - Bloomberg

Indonesia’s stocks dropped, with the benchmark index falling for a third day, after the central bank said inflation may exceed its target, prompting speculation interest rates will be increased further.

The Jakarta Composite index lost 1.2 percent to 3,417.47 as of the 4 p.m. local time close, the lowest level since Jan. 31. More than three stocks fell for each that rose. PT Bank Mandiri, Indonesia’s largest bank by assets, plunged 4.2 percent, the most since Jan. 10. PT Indofood CBP Sukses Makmur, an instant noodle maker, slid 2.8 percent after wheat rose to a 29-month high as drought threatened to damage crops in China.

Bank Indonesia raised its benchmark interest rate last week for the first time in more than two years as the pace of consumer price increases quickened to a 21-month high. Inflation this year may exceed the target of 4 percent to 6 percent, Bank Indonesia Deputy Governor Budi Mulya said today.

“Anomalies in weather conditions are spurring inflation in many places around the world,” said Fadlul Imansyah, who helps manage around $213 million at Jakarta-based PT CIMB Principal Asset Management. “Bank Indonesia will likely respond with another rate increase, which will eventually affect banks.”

Bank Indonesia raised its key interest rate by a quarter percentage point to 6.75 percent on Feb. 4, the first increase since October 2008. The Jakarta Composite has dropped 7.7 percent this year as faster inflation and higher interest rates damped growth prospects in Southeast Asia’s biggest economy. Domestic consumption accounts for about two thirds of the economy, which grew 6.9 percent in the fourth quarter, the fastest annual pace in six years.

Overseas Investors

Overseas investors have sold a net 2.572 trillion rupiah ($288 million) of shares this year and shares on the index are trading at an average of 13.5 times estimated earnings, the lowest level since May 2010.

Mandiri fell 4.2 percent to 5,700 rupiah and PT Bank Rakyat Indonesia, the second largest bank by assets, declined 4.2 percent to 4,625 rupiah.

Indofood CBP, Indonesia’s biggest instant-noodle maker, fell 2.8 percent to 4,425 rupiah, the lowest since Jan. 24. Indofood uses wheat to produce instant noodles.

Wheat gained today to the highest level since August 2008, rising to $8.83 a bushel on the Chicago Board of Trade, as drought threatened to damage crops in China and Middle Eastern and African nations boosted purchases to tackle food inflation. Wheat has surged 82 percent in the past year.

To contact the reporter on this story: Berni Moestafa in Jakarta