Bank Indonesia moves to defend ailing rupiah

The Jakarta Post, Jakarta

The beleaguered rupiah ended slightly higher on Friday following comments from the central bank that it was ready to defend the local unit and late dollar selling by exporters.

The local currency closed at Rp 8,615 per U.S. dollar, compared to Rp 8,620 on Thursday.

Earlier in the day, Bank Indonesia deputy governor Aslim Tadjudin said the central bank was ready to sell its dollar reserves to defend the rupiah.

"We'll maintain the rupiah so that it does not fluctuate too much," he was quoted by Bloomberg as saying. "If necessary, we will intervene. We will do it and sell dollars."

He explained that the weakening of the local unit was mainly due to end-of-the-month dollar buying by corporations to service foreign debts, and also because of election jitters.

Dealers said the central bank intervened later in the day and sold dollars. The move triggered exporters to conduct late-dollar selling to obtain rupiah to pay for taxes, salaries and other expenses, which lifted the rupiah from its intra-day low of Rp 8,650.

The central bank is determined to defend the rupiah, a key factor to controlling inflation, as a strong currency would keep prices of imported products stable.

Bank Indonesia has targeted inflation this year at around 5 percent.

A relatively benign inflation during the past year has allowed the central bank to maintain a low interest rate environment.

The local unit has been under pressure over the past couple of weeks. It has so far weakened by around 2.4 percent this year, making the currency the worst performing unit in the 15 countries of the Asia-Pacific region, according to Bloomberg.

Analysts have said that fears over possible violence and other forms of disruption in the general election had prompted investors to switch to dollars and hedge against risk.

The domestic condition, compounded by the recent terrorist bombing in Madrid, had also sent the stock market down, prompting investors to make a profit by switching rupiah proceeds into dollar notes.

Dealers expected the rupiah to trade at between Rp 8,600 and Rp 8,650 per dollar on Monday.

Meanwhile, Jakarta shares extended losses on Friday, which stock brokers said was linked to political uncertainty ahead of the elections.

Dealers said there were worries over a possible delay in the legislative election in some provinces, which may increase political tension.

The Jakarta Stock Composite Index fell 1.8 percent, or 12.97 points, at 714.13.

The stock market has so far declined by more than 10 percent in dollar terms in the past month.

"I think most investors wanted to lock in their profit while they still could," said a dealer with a foreign securities company as quoted by Dow Jones.

Decliners led gainers 94 to 25, with 62 stocks unchanged.

Volume reached 2.2 billion shares valued at Rp 841.84 billion (US$99 million).

Bellwether PT Telkom led the market's fall, declining by 2.9 percent, or Rp 200, to Rp 6,600. Its rival PT Indosat fell 1.3 percent, or Rp 50, to Rp 3,675.

Profit-taking also hit bank stocks, which recently outperformed the market. Shares of Bank Mandiri, Indonesia's largest bank by assets, edged down 1.9 percent to Rp 1,325, Bank Central Asia ended down 2.7 percent at Rp 3,575, and Bank Danamon decreased 3.5 percent at Rp 2,725.