Dollar demand weakens, rupiah to slide

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.