Analysts say yuan change won't help rupiah much

Urip Hudiono, The Jakarta Post, Jakarta

China's revaluation of the yuan is a mere flash in the pan for the rupiah, analysts are saying, with the local currency unlikely to gain any further footing against the U.S. dollar.

The rupiah had already passed its "fleeting moment of positive sentiment" from the yuan revaluation and was expected to fall back to its "chronic problem" of the enormous domestic demand for the greenback overwhelming its short supply, analysts said.

Analyst Farial Anwar of the Currency Management Group said the rupiah's recent gain against the dollar following the yuan's revaluation was a short-term phenomenon that only lasted for the early hours of trading.

"It was just for that moment, and it was mostly from speculators picking up news of the yuan revaluation," he said. "After that, trading went back to normal according to the market's supply and demand of the dollar."

China scrapped on Thursday its decade-old yuan-dollar peg, effectively revaluing the currency's exchange rate up 2 percent to 8.11 yuan a dollar by pegging it to a basket of major currencies.

The long-anticipated yet still surprising announcement immediately lifted other currencies in the region, particularly the Japanese yen, the Korean won and the Taiwanese dollar.

The rupiah trailed along behind the trend, reaching an intraday high of Rp 9,710 a dollar, but slipping back to Rp 9,795 in the day's closing -- though still up from Rp 9,800 on Thursday -- as huge corporate demand again lapped up the dollar.

Farial expected the rupiah to be trading against the greenback at between Rp 9,750 and Rp 9,850 this week.

"Strengthening the rupiah has more to do with efforts in fixing the market's supply and demand imbalance, by requiring export revenue repatriation and prohibiting dollar loans without underlying transactions, rather than from the yuan," he said.

Analyst Khalil Rowter said the effects of the yuan revaluation on the rupiah were likely be short-term because Indonesia was not a major trading partner of China.

"This is unlike Japan, Korea or Taiwan, whose economies -- and thus their currencies -- are more directly tied to China's," he said.

Khalil said that the rupiah was likely to stay in its current range, because Indonesia's free-floating forex policy meant its current trading range of between Rp 9,600 and Rp 9,800 to the dollar reflected its fair market value.

However, he said other long-term effects were likely to come from the yuan revaluation, such as a slowing down of China's economy, which would affect global oil prices, other economies and currency bourses, including Indonesia's.

Standard Chartered economist Fauzi Ichsan said the impact of the yuan's strengthening was little -- if not "neutral" -- on the rupiah.

"The rupiah will only be affected by resulting temporary sentiments," he said.

Fauzi, who expects the rupiah to trade in the range of Rp 9,835 to Rp 9,875 a dollar this week, said the yuan revaluation was unlikely to create a greater competitive edge for Indonesian exports, as the rupiah's already-low exchange rate should have contributed more to boost exports.