Rupiah ends the week on weaker footing

The Jakarta Post Jakarta

The rupiah ended flat on Friday on late profit taking but still capped this week's trading on a weaker footing after dropping 1 percent of its value against the U.S. dollar.

The local currency closed the day unchanged from Thursday's closing at Rp 8,510 per U.S. dollar, recovering from an intraday low of 8,565 as companies brought dollars for month-end debt servicing and imports financing.

Dealers, however, have said the local unit's rebound is just around the corner as the market sentiment toward the economy has actually been positive, in parallel with continued improvement in the macroeconomic picture.

Progress made by authorities in uncovering the culprits behind the recent bomb attack would also help increase confidence, they said. The government's aggressive response in cracking down on the alleged terrorists has resulted in a number of arrests.

Bank Indonesia, which has been on the front line in guarding the local unit weathering shock after shock, was also optimistic about the rupiah's outlook.

Bank Indonesia remains comfortable with the current development in the rupiah, saying it had no urgency to intervene in the currency market.

"For the time being, we do not need to intervene because the macroecomic picture is good," Bank Indonesia deputy governor Aslim Tadjudin told reporters, adding that the falling rupiah was caused by demands from corporations and did not reflect the overall sentiment on the rupiah.

Aslim added the continued decline in Bank Indonesia's interest rate and benign inflation environment would not be underrated by investors.

The central bank's benchmark interest rate now stands at 8.91 percent, while the January-July inflation at 1.26 percent, both of which are at historic lows.

In fact, despite recent depreciation, the rupiah remains more than 4 percent stronger than it was at the start of the year, although it is slightly lower than Rp 8,490 -- the level posted the day before the JW Marriott Hotel Bombing.

Nevertheless, this week's weaker rupiah has taken its toll, at least at the local stock market.

On Friday, the Jakarta Composite Index was down mostly on the weaker rupiah, which was accelerated by profit-taking actions on selected blue-chip shares.

It ended down 0.1 percent lower than the day earlier at 529.58 points.

"It (the weaker rupiah) is seen to cause further troubles for indebted local companies, notably with those dollar-dominated ones," a dealer said.

The outlook for next week however, he added, remained positive on expectation of the rupiah's recovery.