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Indonesia’s rupiah completed its worst month since February 2009 after a credit-rating downgrade of Spain spurred concern that Europe’s debt crisis is spreading, damping demand for riskier emerging-market assets.

The currency, which opened 1.2 percent lower today, pared losses on speculation the central bank intervened. Bank Indonesia will stay in the market to ease volatility, Senior Deputy Governor Darmin Nasution said on May 21.

Fitch Ratings stripped Spain of its AAA rating last week, saying the nation’s debt burden will weigh on the economy. Indonesia’s bonds rose on speculation that recent financial-market volatility will prevent the central bank from raising interest rates anytime soon.

“The focus is back on risk aversion as Spain’s ratings downgrade highlighted that Europe’s contagion risks are still there‚“ said Vishnu Varathan, an economist at Forecast Singapore Pte. “Investors are making a hasty retreat from risky currencies like the rupiah, the peso, rupee and the won.”

The rupiah weakened 1.8 percent this month to 9,175 per dollar as of 3:15 p.m. in Jakarta, according to data compiled by Bloomberg. That was the currency’s first monthly loss since August 2009 and the worst performance since February 2009, when it dropped 4.5 percent. The currency slipped 0.1 percent from the end of last week.

Bank Indonesia was probably in the market in the morning and will continue to intervene, “especially if the rupiah falls toward 9,300,” Varathan said. “BI won’t be comfortable with such big volatility in the rupiah.”

Bonds Gain
The rupiah’s recent decline will prove temporary as the nation’s economic fundamentals remain strong, Bank Indonesia Deputy Governor Budi Mulya said on May 26. Central banks intervene by buying and selling currencies.

The rupiah is up 2.3 percent this year, the third-best performance among Asia’s 10 most-active currencies excluding the yen.

Indonesia will report tomorrow that exports increased 47.8 percent in April from a year earlier, according to the median estimate of 19 economists in a Bloomberg survey. Overseas shipments climbed 46.6 percent in March.

Government bonds advanced even as inflation data for May to be released tomorrow will probably show inflation accelerated. Consumer prices increased 4.18 percent from a year ago, the fastest pace in a year, according to median estimate of 23 economists in a Bloomberg survey. The inflation rate in April was 3.91 percent.

The Jakarta Composite Index, meanwhile, gained 83.03 points, or 3.1 percent, to close at 2,796.96, rising for a third day. The measure declined 5.9 percent this month, the steepest drop since October 2008. The market was closed on May 28 for a public holiday.

PT Adaro Energy, Indonesia’s second-largest coal producer, advanced 4.7 percent to Rp 2,000, its highest level since May 18. Adaro said it acquired a 25 percent stake in an Indonesian coal venture with BHP Billiton Ltd. for $335 million.

PT Medco Energi Internasional, the nation’s biggest listed oil company, climbed 5.6 percent to Rp 2,850 rupiah. The company may sell between $150 million and $200 million of convertible bonds that may be exchangeable into a more than 6.7 percent stake in the Indonesian oil producer, Finance Director Cyril Noerhadi said.

PT Perusahaan Gas Negara, Indonesia’s biggest distributor of the fuel, gained 5.4 percent to Rp 3,900 rupiah, its highest since May 10. The company signed a deal to buy gas from ConocoPhillips’s Indonesian unit, said Agus Suryono a spokesman at the Indonesian oil and gas regulator BPMigas.

PT Unilever Indonesia (UNVR IJ), the nation’s biggest detergent maker, advanced 3 percent to Rp 15,600 rupiah. Unilever on May 19 filed a notification to the Indonesian competition regulator about its plan to buy PT Sara Lee Body Care, Junaidi Masjhud, a spokesman at the regulator said by telephone today.

Bloomberg