Rupiah set to weaken as euphoria abates<\/p>\n
JAKARTA (JP): Fading market euphoria inspired by the new
\ngovernment could prompt profit takers and corporate U.S. dollar
\nhunters to repurchase the greenback, sending the rupiah down this
\nweek, analysts said on the weekend.<\/p>\n
Currency analyst Wi Wan at PT Vickers Ballas Tamara said that
\nmarket praise for the new government had already begun to wear
\noff during last week's trading.<\/p>\n
\"We will see more of the fundamental dollar demand driving the
\nmarket,\" he told The Jakarta Post.<\/p>\n
He said the rupiah gains made in previous weeks stemmed partly
\nfrom confidence that the new government could restore ties with
\nthe International Monetary Fund (IMF).<\/p>\n
The IMF's announcement that it planned to visit Jakarta this
\nweek further helped boost market sentiment and bolstered the
\nupbeat sentiment for the new government.<\/p>\n
Now that this confidence had already been factored in, the
\nrupiah was set to face real supply and demand factors, Wi Wan
\nsaid.<\/p>\n
With massive foreign corporate debts due to mature later this
\nyear, he said that this meant more pressure for the rupiah in the
\nnear future.<\/p>\n
On the fundamental side of Indonesia's economy, the market had
\nalso yet to see concrete progress, he added.<\/p>\n
He said positive economic growth during the second quarter,
\nthough surprising, had failed to impress the currency market.<\/p>\n
During that period, Indonesia's economy, as measured in gross
\ndomestic product (GDP), grew by 0.18 percent compared to the
\nfirst quarter.<\/p>\n
Many analysts predicted smaller or even negative growth for
\nthe second quarter, as sluggish foreign economies hurt export
\nsales.<\/p>\n
Indonesia's GDP grew by 3.52 percent during the second quarter
\non an annualized basis, raising hopes that it may exceed the
\ngovernment's target of 3.5 percent for the entire year.<\/p>\n
The GDP announcement last Thursday was of no help to the
\nrupiah, which took a steep fall that dealers attributed to
\nprofit-taking.<\/p>\n
The rupiah had been steadily gaining after President Megawati
\nSoekarnoputri unveiled her \"market friendly\" Cabinet.<\/p>\n
A buoyant market propped the rupiah into the 8,000 per U.S.
\ndollar territory last Monday from 9,325 two days earlier, prior
\nto the Cabinet announcement.<\/p>\n
However, Wi Wan attributed the sharp gains as primarily a
\nresult of Bank Indonesia intervention, which encouraged players
\nto dump the dollar.<\/p>\n
\"The rupiah has firmed too high in too short a time ... this
\nis likely to be the work of Bank Indonesia,\" he explained.<\/p>\n
Turning to external factors, Wi Wan said an expected interest
\nrate cut by the U.S. Federal Reserve would be unlikely to affect
\nthe market here.<\/p>\n
\"The Fed has cut its rate many times since early this year.
\nThe impact on the rupiah has been insignificant thus far,\" he
\nsaid.<\/p>\n
Analysts predicted this week that the Fed would implement its
\nseventh interest rate cut, with another 25 basis point reduction
\nexpected to reduce the rate to 3.50 percent.<\/p>\n
Wi Wan said Bank Indonesia would maintain its rates, despite
\ncalls by the government to lower them after the Fed rate cut.<\/p>\n
Coordinating Minister for the Economy Dorodjatun Kuntjoro-
\nJakti said he expected the central bank to follow the Fed rate
\ncut.<\/p>\n
However, the central bank has said it saw no need for any
\ndrastic rate cuts until after Indonesia's economy showed concrete
\nsigns of recovery.<\/p>\n
\"BI (Bank Indonesia) set its rates high to reduce the supply
\nof primary money and to keep inflationary pressure in check,\" Wi
\nWan said.<\/p>\n
Primary money refers to the volume of currency in circulation,
\nin addition to funds held at banks and the reserve funds of
\nbroker banks deposited at Bank Indonesia.<\/p>\n
Bank Indonesia Governor Sjahril Sabirin has said the supply of
\nprimary money must come down from the current level of Rp 110
\ntrillion (about US$12.64 billion) to Rp 108 trillion.<\/p>\n
Sabirin said the rupiah's recent gains were not sufficient to
\nease liquidity in the money market.<\/p>\n
During trading last week, which was shortened by Indonesia's
\nIndependence Day holiday on Friday, the rupiah firmed to 8,740
\nfrom 9,110 the week before.<\/p>\n
Wi Wan predicted the rupiah to hover between 8,500 to 9,000
\nthroughout this week.<\/p>\n
According to him, the rupiah's real exchange value should be
\nbelow 9,000.<\/p>\n
On the stock market, the Jakarta Stock Exchange (JSX)
\nComposite Index fell slightly last week to 435.32 from 435.67 the
\nweek before.<\/p>\n
Stock analyst Baradita Katoppo of PT Inti Binar Andalan
\nSejahtera said the stock market would look for clues in the
\nrupiah's movement.<\/p>\n
\"If the rupiah strengthened, it would raise the share prices
\nof Astra and its subsidiaries,\" he said.<\/p>\n
The widely diversified PT Astra International is saddled with
\nhuge foreign debts, payment of which are not due until next year.<\/p>\n
The shares of pharmaceutical companies relying on imported raw
\nmaterials would also gain from a stronger rupiah, Baradita said.<\/p>\n
Meanwhile, he said the shares of PT Telkom and PT Indosat may
\nlose out with a stronger rupiah.<\/p>\n
Telkom and Indosat are both listed at the New York Stock
\nExchange, making them vulnerable to arbitration trading.<\/p>\n
A stronger rupiah would make their Indonesian shares more
\nexpensive in terms of U.S. dollar value, leading investors to
\ndump the local shares in favor of buying those overseas.<\/p>\n
For next week, Baradita expected trading to be range bound
\nbetween 427 and 447.(bkm)<\/p>",
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