Analysts say yuan change won't help rupiah much

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.