Heavy dollar buying weakens rupiah, rebound expected soon

The Jakarta Post, Jakarta

The rupiah closed lower on Thursday, but dealers expect a rebound soon on renewed confidence in the economy and its improving macroeconomic fundamentals.

The local currency ended at Rp 8,510 against the U.S. dollar, down from 8,455 a day earlier. Dealers attributed the decline to heavy dollar buying by companies to repay off-shore debts and import financing.

"It was more because of corporate action and had nothing to do with our fundamentals, as investors have increasingly regained faith in Indonesia's economy," a currency trader at a foreign bank said.

Bank Indonesia's falling interest rate and a continued easing of inflation should help maintain investor confidence, she said, adding that the rupiah would also be supported by the swift response of the government in tracking down those responsible for the recent Marriott bombing.

She also brushed aside concerns the recent drop in the Philippine peso would effect regional currencies, including the rupiah.

"The main mover of the rupiah is domestic factors, not the peso. If there is an external factor, it usually comes from the U.S. dollar, not the peso."

The peso has been under pressure recently, mostly because of domestic political turmoil, including a failed military coup.

With the peso struggling to regain its footing, President Gloria Macapagal Arroyo warned on Wednesday the authorities would crack down on currency spectators. She also pledged to strengthen the country's monetary policies, signaling the seriousness of the problems faced by the peso.

This has caused concern that the effects will spillover to other regional currencies.

However, the dealer said these concerns were baseless.

"To say that the peso is contagious is an overstatement. Look at the Thai baht, is it being hurt by the peso?" she asked.

The baht rose on Thursday to a 13-month high against the dollar, boosted by encouraging economic data. It closed at 41.18 per dollar.

Another Indonesian dealer at a state bank said: "If we are going to worry about external factors, we better focus our attention on the U.S. economy."

"However, I am confident ... because currently holding the rupiah is more profitable (than holding U.S. dollars), due to the interest difference between the two currencies."

The interest difference currently stands at about 8 percent.