By Andjarsari Paramaditha
JAKARTA (Reuters) - Indonesia's rupiah slid to the lowest level in four years on Monday, stock prices dropped nearly 4 percent and government bonds tumbled on concerns over a widening current-account deficit in Southeast Asia's biggest economy.
Indonesia's current-account deficit, quickening inflation and slowing growth have cast a pall over its economy, among the world's fastest growing, and continue to put pressure on the country's financial markets.
The yield on 10-year notes rose to the highest since March 2011 at 8.37 percent after Indonesia posted on Friday a second quarter current-account shortfall of $9.8 billion, among the largest on record.
"I think the fallout in the market is led by concerns of widening current-account deficit, the drop in FX reserves and the rising inflation as well as monetary tightening," said CIMB's Singapore-based strategist Chang Chiou Yi, who has an "underweight" call on Indonesian stocks.
At 0745 GMT, the rupiah was trading at 10,495 to the dollar, down just over 1 percent and its lowest level since May 2009. The rupiah has slid 8.2 percent this year. As it slides, the central bank has dug deep into its foreign-exchange reserves to defend it, stoking concerns in markets.
At the end of July, Indonesia's foreign-exchange reserves were $92.7 billion, down $12.4 billion from two months earlier and more than 25 percent below its August 2011 high, say economists at Credit Suisse.
"Although the current level of reserves is still equivalent to a reasonably healthy 5.5 months of imports, the bank can't continue to burn reserves at the current rate without the market worrying about a 'crisis' scenario unfolding," it said in a note to clients on Monday.
At 0735 GMT, Jakarta's Composite Index (JCI) <.JKSE> was off 4.5 percent at 4,361.77, its lowest for nearly six weeks. That followed a 2.5 percent drop on Friday when foreign investors pulled almost $90 million from Indonesian stocks on fears over the prospect of stimulus cut in the United States and tighter global liquidity.
Monday's biggest stock losses were in banks with that index <.JKFINA>, which dropped nearly 5 percent on moves late last week by the central bank to contain bank lending, including lowering the maximum ratio of loans-to-deposits.
'NEW EQUILIBRIUM'
Indonesia's current-account shortfall reached 4.4 percent of gross domestic product in the April-June quarter, from 2.4 percent the first quarter, according to central bank data. The shortfall of $9.8 billion topped the central bank's forecast of $8 billion. One driving factor was increased imports for domestic consumption at a time exports have remained weak.
Indonesian Finance Minister Chatib Basri said he was not worried by the rupiah weakness and predicted the current account deficit, though it would remain into next year, would narrow.
Late last month, Bank Indonesia Governor Agus Martowardojo said the currency had reached a "new equilibrium", suggesting the central bank was comfortable with the weakening rupiah that helped exports as long as the fall was not too abrupt.
The central bank also has said it did expect pressure on the current account to ease in the second half of the year.
Indonesian government bonds have also been hit.
"Bond yields have been quite volatile since last week, affected by the weakening rupiah and high inflation, coupled with rising treasury yields globally," said Handy Yunianto, head of fixed income research at Mandiri Sekuritas in Jakarta.
A weaker global economy threatens to further cut into the exports of natural resources on which Indonesia's economy has long relied. At the same time, high inflation limits the prospects for domestic consumption to pick up much of the slack.
The latest market reverses follow a fairly upbeat budget for next year, announced on Friday by President Susilo Bambang Yudhoyono, who forecast 2014 growth would rise to 6.4 percent next year while the annual inflation rate would slide back to 4.5 percent.
Most economists say growth this year will struggle to hit 6 percent, while inflation at present is running at more than 8 percent.
Risk aversion and the sliding rupiah will likely further depress stocks this week, said Edwin Sebayang, head of research at MNC Securities in Jakarta.
"Investors kept close watch on the movement of USD/IDR, which is potentially heading 10,500 rupiah/USD, and the continued impact of the new BI policy on banking and property stocks," Sebayang said. (Additional reporting by Vitarap Jantraprap in Bangkok, Adriana Nina Kusuma in Jakarta and Jongwoo Cheon in Singapore; Writing by Jonathan Thatcher. Editing by Jason Szep and Richard Borsuk)
