Rupiah down as support wanes
The Jakarta Post, Jakarta
The rupiah ended its three-day advance against the U.S. dollar, as central bank support appeared to run out of steam with the government yet to unveil more concrete fiscal policies to help strengthen the nation's recently beleaguered currency.
The rupiah began slipping again against the greenback, closing down by a slight 0.93 percent at Rp 10,320 on Monday, as compared to its Rp 10,225 closing last Thursday.
Monday's fall came as several Asian currencies gained on the dollar on the back of the greenback's recent weakening against the euro and the Japanese yen as the impact of Hurricane Katrina cast doubt on U.S. economic prospects.
The Jakarta Stock Exchange Composite Index also closed down by 0.32 percent at 1,035.89 points, though pressure on share prices appeared not to be a spillover from negative sentiment against the rupiah, but more to do with the recent revision by global rating agency Standard and Poor's (S&P) of its Indonesian credit ratings.
S&P affirmed last week Indonesia's B+ long-term foreign currency and BB long-term local currency sovereign credit ratings, but revised their outlooks from positive to stable. On Monday, S&P also cut its rating outlooks for Bank Mandiri, Bank Negara Indonesia, Bank Danamon, Telkom and Indosat to stable from positive.
Indonesian financial markets were closed on Friday due to a national holiday.
The rupiah suffered a ten-day slide against the greenback late last month, tumbling to a four-year low, and narrowly escaping Rp 12,000 per dollar, as record-high oil prices jeopardized the country's fiscal stability and shook market confidence in the currency.
The rupiah only managed to make a rebound after Bank Indonesia (BI) came to the rescue with a six-point monetary policy package last week, which included effectively hiking its benchmark BI Rate to 9.5 percent, raising its one-week overnight rate to 8.5 percent, and increasing the minimum reserves that commercial banks are required to deposit with the central bank to 5 percent.
On Monday, the central bank continued its all-out efforts to help the ailing rupiah, hiking its overnight rate to 13.52 percent -- from the previous 10.82 percent -- and offering its Fine Tune Kontraksi deposits -- to absorb a total of Rp 17.05 trillion (some US$1.7 billion) in excess market liquidity.
The rate hike could prove helpful for the rupiah as it will further encourage banks to fulfill the new minimum reserve requirement, which will come into effect on Tuesday.
Earlier in the day, Minister of Energy and Mineral Resources Purnomo Yusginatoro reaffirmed during a hearing with the House that the government planned to gradually hike domestic oil-based fuel prices -- including kerosene, which is used by many of the country's low-income families -- until they reached market levels by 2007.
Calls to hike fuel prices to cut budget-burdening fuel subsidies have recently surfaced as a solution to help the rupiah.
Doing so is, however, a political sensitive decision for the government, whose last fuel price hike in March sparked widespread protests and pushed the inflation rate up to 8.81 percent.