Rupiah ends lower on rising global oil prices

Rupiah ends lower on rising global oil prices

Dow Jones, Jakarta

The rupiah closed at more than a six-week low on Monday as rising global oil prices are threatening the sustainability of the government's budget, dealers said.

The dollar closed at Rp 9,885, compared with its close on Friday at Rp 9,805. The last time the dollar closed around this level was July 5, when it ended at Rp 9,883.

The dollar touched an intraday high of Rp 9,892, but suspected intervention by Bank Indonesia helped the local unit a bit. Dealers estimated that the central bank sold around US$40 million in the spot market on Monday.

"The market was worried that the fuel subsidy in the state budget will become unbearable," a dealer with a foreign bank said. "The dollar will likely continue rising in the coming days as there are no signs that oil prices will ease."

Dealers expect the dollar to trade between Rp 9,850 and Rp 9,900 on Tuesday.

Meanwhile, Indonesian shares ended sharply lower on Monday as investors continued to pare their equity portfolios as they feared that the rupiah may weaken further due to rising oil prices, dealers said.

High oil prices will mean that the government will have to spend more on oil imports, which in turn will widen the nation's budget deficit this year. Indonesia is a net oil importer.

Dealers said high oil prices could also force the government to increase fuel prices soon, which in turn could result in social unrest.

The Jakarta Stock Exchange's Composite Index ended down 3.1 percent, or 35.695 points, to hit a five-week closing low at 1118.274.

Decliners led gainers 144 to 6, with 38 stocks unchanged. Volume rose to 1.67 billion shares valued at Rp 1.5 trillion, compared with 1.25 billion shares valued at Rp 1.7 trillion on Friday.

"The government may have to take the politically sensitive move of increasing domestic fuel prices," said Baradita Katoppo, the head of research at Kim Eng Securities, in a research note.

Analysts feared that the government's decision to increase fuel prices will face strong opposition from students and people at the lower rungs of society.

Dealers also attributed the selloff to lingering concerns about interest rates after the central bank last week raised its key interest rate to 8.75 percent from 8.50 percent due to rising inflation.

Bank blue chips led the decliners on expectations that the rate hike could reduce the interest margins of banks and push up the nonperforming loans of finance companies.

Bank Mandiri, the nation's largest lender by assets, fell 4.2 percent to Rp 1,580, Bank Central Asia dropped 2 percent to Rp 3,425 and Bank Rakyat declined 4.2 percent to Rp 2,825.

Finance company Adira Dinamika Multi Finance lost 18 percent to Rp 2,125.

Elsewhere, bellwether Telekomunikasi Indonesia lost 2.8 percent to Rp 5,200 and rival Indonesian Satellite fell 3.5 percent to Rp 5,600.

Dealers said they expect shares to trade flat to slightly higher Tuesday on a rebound after falls in the previous four sessions.