Rupiah fall only temporary: Govt
The Jakarta Post, Jakarta
The rupiah fell to a 19-month low on Tuesday as economic and political uncertainties created jitters among companies, which lately have been heavy buyers of dollars.
But Minister of Finance Boediono said the rupiah's fall was only temporary as the large current account deficit in the U.S. would eventually push the American greenback lower.
"In my opinion, this is only a short-lived trend. In fact, in the medium-term, the dollar will weaken," he said.
He added that as part of efforts to help stabilize the local unit, the government would dispose of its dollar-based assets. He did not provide details, but a Ministry of Finance official said that part of the government's tax revenue was in dollar notes.
The rupiah closed at Rp 9,260 against the dollar on Tuesday, lower than Monday's close of Rp 9,125. The local unit plunged to as low as Rp 9,345 during the day, but dealers said that intervention by the central bank helped to prevent the rupiah from a deeper plunge.
They added that expectation of a hike in U.S. interest rate later next month, soaring oil prices, and domestic political uncertainty ahead of the July 5 presidential election had prompted local corporations to purchase dollars as they feared the local unit might fall further. The companies need the hard currency to repay maturing overseas debts and finance the import of raw materials.
Expectations the U.S. Federal Reserve will hike interest rates from their 46-year low have prompted investors to switch their investment to dollar-based assets, which, in the case of Indonesia, harmed the rupiah.
But remarks from Boediono suggest that the fall in the rupiah, which has been the worst-performing currency in the Asia region so far this year, is not a sign of the reemergence of the late 1990s currency crisis, given particularly the country's stronger foreign exchange reserves, and more stable macroeconomic conditions.
Nevertheless, the fall in the local unit, especially as the central bank seems to be unable to stem its decline, has created fears of inflationary pressures at home, and might force the central bank to start pushing domestic interest rates higher, both of which could harm the overall economic recovery process.
Meanwhile, the fall in the local unit contributed to a 2.1 percent decline in the Jakarta Stock Composite Index to 717.13 points on Tuesday. The index has fallen 12 percent since its April 27 high.
Falls in many Asian stock markets also affected the local market.
But traders said that late bargain-hunting in select blue chips lifted the index from its intraday low. Decliners led gainers 101 to 25, with 37 stocks unchanged. Volume was 1.1 billion shares valued at Rp 764 billion.
Bellwether PT Telkom lost Rp 350, or 4.6 percent, to Rp 7,250 on profit-taking, and after its American Depositary Receipts fell 0.5 percent to US$16.86 on Monday.
Select banking blue chips ended lower on renewed worries that the central bank may increase interest rates to prevent the rupiah from falling further.
Oil producer Medco Energi International ended up Rp 25, or 1.9 percent, at Rp 1,375 amid reports that independent directors at Australia's Novus Petroleum Ltd. recommended that Novus shareholders accept the revised Medco takeover offer.