Rupiah could strengthen further

Dadan Wijaksana, The Jakarta Post, Jakarta

The rupiah could further strengthen this week amid a lingering bullish sentiment, but the absence of fresh good news and continued corporate demand for dollars will limit the currency's appreciation, analysts say.

"I think there is still a chance for the rupiah to further appreciate against the dollar, but it will not be much less than before," DBS Vickers analyst Wiwan Widjaja told The Jakarta Post over the weekend.

He added that the rupiah was expected to hover at around Rp 8,900 to Rp 9,000 per U.S. dollar this week.

PT Currency Management Group's analyst Farial Anwar earlier predicted that the rupiah would be able to maintain its current level at least until the end of the month.

The currency market's euphoria reached its highest level last week when the local unit closed below the psychological level of Rp 9,000 for the first time since September last year.

Thanks to the improved market sentiment here and the upward trend of regional currencies against the dollar, the rupiah ended the week higher at Rp 8,950, against the previous week's closing of Rp 9,080.

While last week the rupiah was supported by the movement of regional currencies, this week the rupiah will not get much help from those, as the Japanese central bank is expected to intervene to stem yen's strengthening against the dollar, Wiwan said.

The yen has been the prime mover of the dollar depreciation against regional currencies.

The rupiah has been steadily rising from early this year, fueled mostly by positive news, including the country's more stable political climate, relatively fewer security disturbances and progress in the economic recovery program.

All these have helped revive investors' confidence in the country's commitment to economic reform, encouraging more foreign capital inflow.

But the rupiah will remain volatile given the government's and the corporate sector's huge foreign debt.

"Especially now that we're approaching the end of the month, which is usually marked by high dollar demand from corporations needing to either repay their debts nor finance imports," Wiwan added.

"A lack of fresh market news will also put pressure on the rupiah," he said.

Meanwhile, in the stock market, the composite index is expected to remain under pressure in the coming week amid ongoing concerns over the poor outcome of PT Indosat's private placement two weeks ago.

The Jakarta Stock Exchange composite index closed the week 24.623 points lower, an almost 5 percent drop from the previous Friday at 506.955.

"Unless the government clarifies confusion over the sale of Indosat shares, the firm's shares this week will remain under selling pressure.

"This will drag down other blue chips, which will in turn force the index down," Jasso Winarto, stock analyst at Sigma Research Institute, told the Post.

Controversy has marred the sale, with the government suspecting insider trading.

The government sold an 8.1 percent stake in state-owned international call operator firm Indosat two weeks ago for US$110 million as part of this year's privatization program.

While the amount of shares sold was much less than its initial plan of releasing 11.32 percent, the price tag of Rp 12,000 per share was also lower than expected.

The Capital Market Supervisory Agency (Bapepam) is investigating U.S. investment firm Merrill Lynch for possible involvement in the illegal practice of insider trading.

Daily volume averaged 741.6 million shares valued at Rp 654.4 billion ($73.07 million) compared to the previous week's 793.76 million shares worth Rp 507.8 billion.