Dollar demand weakens, rupiah to slide
Berni K. Moestafa, The Jakarta Post, Jakarta Post
The rupiah may take reprieve from low trading activities next week, but as the U.S. dollar supply thins, the local unit is still likely to slide even on mild dollar hunting, said one currency analyst.
Currency analyst Farial Anwar said a drop in dollar purchases for imports and debt payments have eased pressure on the rupiah.
Nevertheless, the local unit may shoot up or fall steep in volatile trading stemming from scant dollar supplies, he said.
"Supply is thin, and the rupiah can move in either direction fast," Farial told The Jakarta Post over the weekend.
But he added the rupiah would likely trace last week's quiet trading on weak corporate demand and the absence of speculators.
Importers, he said, made the bulk of their purchases in October, when they began stocking goods to anticipate a surge in consumption ahead of the year's end festive season.
Some dollar debtors followed suit as they tried to hedge the dollar before their maturing dates draw near by year's end.
Corporate buyers also refrained from upsetting the rupiah's fragile stability, while speculators had mostly left the market.
"The rupiah was not roused, with the news of Tommy's capture," Farial said, referring to former president Suharto's youngest son, Hutomo "Tommy" Mandala Putra, who had been wanted by police for more than one year.
Other than Tommy's arrest, there were only a few clues to trade on, he said.
He said that Bank Indonesia remained the market's prime dollar supplier along with the Indonesian Bank Restructuring Agency (IBRA) which converted its dollar proceeds into rupiah.
Farial said foreign banks' reluctance to trade with smaller, or relative unknown banks further trimmed dollar availability.
"Foreign banks ignore weak banks, and impose higher prices for trading with smaller ones," he said.
Small banks in need of unwinding their positions had problems finding counter partners in the interbank market, he said.
"Foreign banks fear further bank liquidation at the end of the year, and talks of mergers have also raised their level of caution," he explained.
According to him, foreign banks began avoiding exposures at small banks since the closure of Unibank early last month.
Bank Indonesia shut down Unibank for incurring a negative Capital Adequacy Ratio (CAR). It should have been at least four percent.
More banks are at risk of closure, as the central bank will hike its minimum CAR requirement to eight percent this year.
For this week, Farial expected the rupiah trade at between 10,300 to 10,500 against the U.S. dollar.
But if Bank Indonesia seized the opportunity to intervene in the market, he said, the rupiah could recover to 10,200.
Last week, the rupiah tracked a narrow band of between 10,400 and 10,450, ending Friday at 10,450.