JAKARTA Indonesia's rupiah slid to its lowest level in four years on Monday, shares fell the most in 22 months and government bonds slumped on concerns over a much wider current-account deficit in Southeast Asia's biggest economy.
Indonesia's glow as an investor haven has started to look tarnished, with rapid growth slowing, the current account deficit widening sharply, while a recent jump in inflation and moves to slow expansion bank lending will likely cut domestic demand.
Some economists said Indonesia increasingly faces the uncomfortable prospect of being lumped by investors together with fellow Asia giant, India, whose markets have been falling even sharper over worries about its economic management.
"There is a risk that Indonesia could be like India, (with market risk) dominated by perception instead of economic fundamentals," Eric Alexander Sugandi, economist at Standard Chartered in Jakarta, said.
At 0954 GMT, the rupiah was trading at 10,490 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.
The yield on 10-year notes rose to the highest since March 2011 though later eased back to 8.338 percent.
The driving factor for both developments was late Friday's news that the current account deficit in the second quarter was worse than expected at $9.8 billion, one of the biggest on record.
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 their 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 (central) 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.
The Jakarta Composite Index (JCI) .JKSE closed down 5.58 percent at 4,313.52, its biggest one-day fall since October 2011. That followed a 2.5 percent drop on Friday when foreign investors pulled almost $90 million from Indonesian stocks on fears over the impact a coming stimulus cut in the United States and tighter global liquidity would have.
The plunge wiped out all the benchmark's gains since the start of the year.
The biggest losses have been bank stocks. The finance sector index .JKFINA fell 3.81 percent on Friday after the central bank unveiled moves to contain bank lending, including trimming the maximum ratio for loans-to-deposits. On Monday, it plummeted another 6.34 percent.
Indonesian Finance Minister Chatib Basri said on Monday he was "not worried" by the rupiah weakness and predicted that 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 its 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 and the inflation rate would slide back to 4.5 percent. (In July, the annual inflation rate spiked to 8.61 percent.)
Most economists say growth this year will struggle to hit 6 percent, especially as the central bank has raised its benchmark interest rate in a bid to contain high inflation.
But one Indonesian fund manager said he expected interest in buying shares will return if the index drops some more, reaching between 4,000 and 4,200.
"Overall, the JCI is still valued at a slight premium to regional indices in term of P/E (price-earning) ratios. That's why investors are still waiting for cheaper prices to jump into the market," said Jemmy Paul, head of investment at Sucorinvest Asset Management. (Additional reporting by Viparat Jantraprap in Bangkok, Adriana Nina Kusuma and Rieka Rahadiana in Jakarta and Jongwoo Cheon in Singapore; Writing by Jonathan Thatcher; Editing by Richard Borsuk)