Another day, another low for defenseless rupiah
Urip Hudiono, The Jakarta Post, Jakarta
President Susilo Bambang Yudhoyono's remarks that the government would coordinate with the central bank failed to bolster market confidence on Thursday, with the local unit losing even more ground against the U.S. dollar amid record-high oil prices.
The rupiah fell to another fresh low of Rp 10,326 a dollar, down from Wednesday's closing of Rp 10,271. The rate is the lowest since January 2002.
Susilo's move to address the situation with an impromptu meeting with Bank Indonesia officials late on Wednesday did little for the rupiah, except nudge the currency up slightly to Rp 10,250 during Thursday's opening trading. The President signaled a reduction in the budget-burdening fuel subsidy and requested all to restrain from doing anything that could worsen the situation.
The local unit, however, began losing ground again afterwards, stumbling to Rp 10,400 during intraday trading, as the local forex market had a mind of its own.
Companies and speculators alike kept hunting for the American greenback, as global oil prices continued hovering at US$68 a barrel.
A weaker rupiah makes imports -- a major component in many Indonesian companies -- more expensive.
Indonesia, an oil-exporting country, ironically has to import oil as well amid rising consumption, which has jacked up the state budget's Rp 76.5 trillion allocation for the fuel subsidy.
Rising prices will also push up inflation, forcing the central bank to raise its interest rates, which in the end could hurt businesses.
And the situation will likely worsen until the end of the week, with the rupiah being put further under pressure, as the end of the month is a time when many companies are in need of even more dollars to service their foreign debts.
However, on a more positive note, the country's stock prices ended a nine-day fall on Thursday's trading, rising 2.6 percent to book a closing at 1061.84, with investors deeming that the time was now ripe for profit taking.
The Jakarta Composite Index had closed 2.6 percent down to 1035.45 on Wednesday.
The advance was led by export-oriented companies that would benefit from a weaker rupiah, with state gas company PT Perusahaan Gas Negara (PGN) leading the advance, as well as cigarette producers and agriculture companies.
The stock market rise was likely attributable as well to a visit by economic ministers to the Jakarta Stock Exchange on Thursday evening.
Coordinating Minister for the Economy Aburizal Bakrie and Minister of Finance Jusuf Anwar visited the bourse to assure the market that the country's economy was still manageable.
Aburizal stressed the government's intention to hike domestic fuel prices to cut the budget-burdening fuel prices.
"The government will continue hiking fuel prices until they reach a market level by the end of next year," he said after the meeting.
Meanwhile, Bank Indonesia managed to absorb Rp 20.8 trillion in excess liquidity from the local forex market on Thursday, through its overnight deposit offering to commercial banks, as part of its market intervention tools to support the rupiah.
The central bank is offering an overnight deposit to commercial banks at a rate of 7 percent, and a week long deposit at a 7.5 percent rate.