Mon, 26 May 2003

Rupiah expected to remain strong

Dadan Wijaksana, The Jakarta Post, Jakarta

The solid showing of the rupiah is expected to continue this week on expectations of further capital inflows to the country and lingering negative sentiment against the U.S. dollar, a currency analyst said.

"The rupiah has a chance of strengthening, although it will not be as strong a gain as last week, but still, it could probably hit the 8,000 level," a foreign-exchange dealer at a Jakarta-based foreign bank told The Jakarta Post on Sunday.

Last week's trading saw the local unit appreciate against the U.S. dollar to close at Rp 8,275 per U.S. dollar -- the strongest level since September 2000 -- partly due to the number of offshore investors wishing to buy local assets here. The rupiah closed the previous week at 8,425.

The local currency's progress was, to a great extent, due to the continued shaky performance of the dollar, which felt the pinch of a slew of discouraging economic data in the U.S., with the rise in the U.S. unemployment rate being the latest.

The dealer saw no reason for the strengthening trend to stop this week.

"I see no indications that the dollar will rebound against other currencies. It would be even tougher for the dollar to stop the rupiah, which has also been buoyed by capital inflows."

Backed up by the country's increasingly stable macroeconomic indicators -- followed by successive cuts in the central bank's interest rate and low inflation -- investors have been eying domestic assets.

"The sale of (Bank) Danamon has convinced investors that the country is moving in the right (economic) reform direction. They are now keen to see more assets for sale," he said, referring to the recent sale of Bank Danamon's 51 percent stake to a consortium led by Singapore's Temasek Holdings Ltd. and Deutsche Bank.

Upcoming bond issues from the country's top firms provided further impetus for investors, he added.

Local companies have been rushing to issue bonds as a cheaper way of raising cash amid a growing appetite among investors for bonds as bank deposit rates have been declining. Foreign investors are also attracted to the local corporate bonds because of the better returns.

PT Indofood, the world's number one instant noodle maker, and Bank Mandiri, the country's largest bank, are among those planning to issue bonds to raise cash.

Meanwhile, a strengthening rupiah could also further benefit the Jakarta stock market this week, which would also be supported by an estimated rebound in regional markets, a stock dealer said.

"The stronger rupiah is good as it will help strengthen the financial condition of local companies with dollar-denominated debts. This will help encourage investors to take a 'buy' position," a dealer at a local securities firm said.

If the rupiah's strong performance continued, she said that the Composite Index should be able to rise by 5 to 10 points.

The index closed last week at 472.11, up from the previous week's closing of 467.94, with daily value averaging Rp 400.8 billion (US$48.3 million) compared with Rp 428.79 billion the week before.