Indonesian market rout worsens ahead of central bank rate decision

[Jakarta] INDONESIAN stocks and the rupiah retreated for a third day on Wednesday, with the currency hitting a 31-month low as foreign investors dumped the country's assets after a spike in benchmark US yields.

The rupiah slumped to as low as 14,110 to a US dollar, the weakest level since October 2015, while the Jakarta Composite Index dropped as much as 1.6 per cent. The yield on benchmark 10-year government bonds rose by 10 basis points to 7.19 per cent.

A fresh wave of risk aversion is spreading across Asia as investors grapple with rising Treasury yields and a strong dollar amid lingering trade, growth and geopolitical worries.

That's adding pressure on Bank Indonesia to increase interest rates on Thursday as it seeks to stem the sell-off that's made the country's currency and stocks among the worst performers in Asia.

A series of terror attacks this week have further soared investor sentiment. "Investor sentiment has been weak to begin with, and now we've got this series of bomb attacks and various reports of other terror scares. All of these have raised the uncertainties on the Indonesian market further," said John Teja, a director at PT Ciptadana Sekuritas Asia. "The rupiah is also weakening. At this point I don't see any positive catalyst that can reverse the trend."

The terror attacks that rocked Indonesia this week killed at least 26 people, including a total of 13 militants and their children. The police shot dead four sword-wielding men who attacked a police headquarters in Sumatra province on Wednesday, which also killed a police officer. BLOOMBERG