Rupiah ends up in quiet market

Rupiah ends up in quiet market

Dow Jones, Jakarta

The rupiah rose slightly against the greenback on Friday, capping a week of quiet trading as new central bank foreign exchange rules deterred speculation, traders said.

The dollar closed at Rp 9,650, down from its close on Thursday at Rp 9,655.

Trading demand was dominated by dollar purchases on behalf of state-owned oil firm Pertamina, traders said.

The firm is using that cash both to pay end-month oil import bills and to shore up reserves of gasoline and diesel fuel to twenty days from a current level of 12 days.

"What's happening is the market is seeing only real demand flow from customers...speculative flows have basically disappeared since Bank Indonesia unveiled the new forex rules," a trader at a foreign bank said.

"But the value of the dollar isn't going any lower from what we've seen this week because of demand for dollars from corporates.

Bank Indonesia will implement next month regulations that will restrict the amount of dollars banks can borrow from offshore counterparts without underlying transactions at US$1 million. Previously, there was no cap on the amount.

Central bank officials have said that the move is aimed at reducing the amount of speculative offshore money coming into Indonesia, which can destabilize the exchange rate.

The announcement of the new rules last week prompted volatility that drove down the rupiah as investors bought dollars as a reflexive protective measure.

But domestic corporate demand -- particularly from Pertamina -- to service offshore debts will help the dollar, traders said.

"From here, I see the dollar gradually going higher on no speculative flows, but real demand," a trader said.

Dealers expect the dollar to trade between Rp 9,630 and Rp 9,680 next week.