Rupiah expected to rebound this week

Rupiah expected to rebound this week

The Jakarta Post, Jakarta

Caution will likely be the watchword this week following last
week's fall of the rupiah, but dealers are looking for the local
unit to rebound.

The rupiah fell to a three-month low of Rp 8,730 per US dollar
in the middle of last week as investors took profit by selling
rupiah-denominated assets, but intervention by Bank Indonesia and
the close monitoring of banks engaged in heavy selling of the
rupiah helped strengthen the unit to 8,520 by the close of
trading last week.

However, this was still lower than 8,320 per dollar the rupiah
closed at the week before.

"Judging from Bank Indonesia's quick response, coupled with
expectations of profit-taking, confidence in the market is
running high that the rupiah will claw its way back up," a dealer
at a European-based bank told The Jakarta Post over the weekend.

Reports said that the central bank dispatched inspectors to a
number of banks involved in aggressive selling of the rupiah, to
ensure their dollar buying activities were based on genuine
underlying transactions, and were not for speculative purposes.

Rising confidence in the U.S. economy triggered the dollar's
rise against currencies around the world last week, including the
rupiah, whose rapid appreciation had made it a star performer in
the region.

Foreign investors actively sold their rupiah assets, mostly
bonds, to be followed by domestic investors who sold rupiah to
cut losses, adding to the pressure on the local currency.

In addition to external factors, domestic issues also
contributed to the rupiah's fall. These included the declining
interest margin between Indonesia and other countries, as well as
plans to start imposing taxes on previously tax-free mutual
funds.

Mutual funds have been exempt from income tax to help boost
investment in the country's capital market.

Bank Indonesia stepped in during the last two days of the
week, selling its huge dollar reserves to support the local unit.

"If the central bank continues to show similar signs (of
intervention), we're going to see a rebound. But still in a
narrow range of about Rp 8,500 to 8,400 per dollar," the dealer
said.

"With Bank Indonesia around, speculative trading and panic
selling will be limited," he added.

Meanwhile in the stock market, expectations that the rupiah
will recover should help push the Jakarta stock index up, an
analyst said.

"There is confidence that Bank Indonesia will maintain its
open-eye policy on the rupiah. If this happens, then the index
will bounce back as well," a stock analyst at Kim Eng Securities
told the Post.

The Jakarta Composite Index fell sharply last week, dragged
down by the local unit's fall, but rebounded slightly on Friday
to close at 510.08, or 2.9 percent lower than the previous week's
close.

Daily value averaged Rp 477 billion compared to Rp 630.42
billion the week before.

"If the rupiah can stay in a range of 8,400 to 8,500 per
dollar then the sentiment for the stock market will be positive,"
the analyst said.