Rupiah falls to three-month low

Dadan Wijaksana The Jakarta Post Jakarta

The rupiah fell to its lowest level in three months on Wednesday to close at Rp 8,610 per U.S. dollar from 8,425 in Tuesday's closing, as foreign investors continued buying dollars after selling rupiah-denominated assets.

The continued heavy selling of the rupiah assets -- mainly in the form of bonds -- was triggered by rising confidence in the U.S. economy, StanChart economist Fauzi Ichsan said.

The local unit fell, at one point, to as low as 8,655 earlier in the day, although intervention from Bank Indonesia, as confirmed by governor Burhanuddin Abdullah, managed to halt any further decline. Burhanuddin said the central bank would continue to buy rupiah with its for currency reserves from time to time to reduce the volatility.

"It (rupiah's sell-off) started last week after (U.S. Federal Reserve Chairman Alan) Greenspan's remarks. A number of investors in New York, betting on rising confidence in the dollar, bought the greenback using the proceeds from selling their assets, mostly (bank) recapitalization bonds.

"This, coupled with the negative sentiment arising from the upcoming Annual Session of the MPR (People's Consultative Assembly), brought down the rupiah to the current level," Fauzi told The Jakarta Post.

Last week Greenspan painted a bright outlook for the U.S. economy, giving fresh blood to the depleted dollar.

The rupiah has been depreciating ever since. The local unit had previously been rising rapidly against the dollar, gaining by around 8 percent since the start of the year.

Asked whether the rupiah would fall further, Fauzi claimed he was upbeat that it would not be the case, saying the trend was only temporary, as the country's macroeconomic fundamentals remained sound.

He cited the interest margin of the rupiah against the dollar and continuing capital inflows, wherein investors were buying local assets for sale by the Indonesian Bank Restructuring Agency (IBRA) as reasons to believe it was just a temporary blip.

Currently, the one-month interest margin between the rupiah and the dollar stands at around 8 percent.

Capital inflows would also come via the government privatization program. To name a few, the government plans to sell its shares in Bank Rakyat Indonesia (BRI), Bank Lippo and Bank Danamon.

"That should be enough to support the rupiah in the medium term," Fauzi said, adding that the local currency would now seek to find a new equilibrium level at a range of between 8,400 to 8,800 per dollar.

The central bank also shared the same confidence on the rupiah, by maintaining its trend of cutting down its one-month interest rate to 9.17 percent at its weekly auction.

The previous level stood at 9.21 percent.

Meanwhile, the rupiah's fall triggered investors to sell stock, dealers said, with the Jakarta Composite Index closing 0.8 percent lower.

The index ended at 512.62 points, versus 516.77 the day before.

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