Fall in rupiah to ease: Analyst

Berni K. Moestafa, The Jakarta Post, Jakarta

Following last week's steep fall of the rupiah, pressure against it may ease, one analyst said, but warned that the weakening of the local unit was expected to continue this week.

Currency analyst Kahlil Rowter said the rupiah's drop would moderate in coming days, provided no unexpected bad news hit the market.

"However, the medium term outlook on the rupiah just isn't good, the unit will sustain its downward trend," he told The Jakarta Post over the weekend.

The market is losing patience as the government made little headway on both the economic and political front, he said.

President Megawati Soekarnoputri conceded that economic recovery had been progressing too slowly.

Speaking before the People's Consultative Assembly last week, she painted a grim outlook of the nation's economic condition.

That, in part, is due to mounting debts that are crippling the government's spending options, which could otherwise have been extended to give the economy a much needed boost.

Lacking a spending push from the government, the economy has been further hit by the absence of foreign investments and a banking sector that has yet to resume its lending role.

But Khalil said Megawati's statement did little to hurt the rupiah other than underscore its weakness in the longer term.

Last week's sharp plunge of the unit, mainly stemmed from Unibank's shutdown, triggering fear of more closures to come.

He said after the initial shock that companies who had no urgent need for the dollar had scooped the unit earlier to avoid buying it at higher levels.

"Unlike speculators, who can sell their dollars at anytime to take a profit, companies that obtain dollars early, are likely to keep theirs," Khalil explained.

This was compounded by Bank Indonesia, which showed little interest in preventing the rupiah's fall, he added.

"Even if Bank Indonesia says it can do little to help the rupiah, the market feels more free to purchase the dollar," he said.

With foreign reserves limited, he said, Bank Indonesia may have lowered its intervention goal so as to moderate the fall of the rupiah.

"There is nothing really negative going on now, but on the other hand, without positive news breaking this trend, chances for a recovery (of the rupiah) are scant," he said.

The rupiah took a series of blows during last week's trading, which landed it at 10,620 against the U.S dollar from 10,253.

Khalil estimated further drops ahead, although there was a slim possibility of the unit recovering as profit-taking sets in.

"Just like in the past, the rupiah plunges and then recovers a bit. But basically, it loses more than it regains afterwards," he said.

For this week, he estimated the rupiah would trade at 10,600 and below, or if negative sentiment was ebbing it would return to between 10,200 and 10,300.

On the stock market, analyst Jasso Winarto of Sigma Research said plans for more interest cuts by the U.S. Federal Reserve may give the battered stock index some reprieve.

"The rate cut is expected early this week," he said.

But outside that, he added, the Jakarta Stock Exchange Index would remain vulnerable to further losses.

Last week, the index closed at 380.65 down from 387.82 a week before.