Rupiah higher as capital inflows go on

Rupiah higher as capital inflows go on

Dow Jones, Jakarta

The rupiah recovered further on Monday to a four-week high as foreign investors continued to buy local stocks and bonds, dealers said.

The dollar closed at Rp 10,095 versus its close on Friday at Rp 10,215.

"Capital inflows to the stock and bond markets continued today, but I'm not sure how long this will last," a dealer with a foreign bank said.

He also said significant capital inflows would continue only if the government cuts fuel subsidies by increasing domestic fuel prices to help the state budget.

State Secretary Yusril Ihza Mahendra on Monday quoted President Susilo Bambang Yudhoyono as saying a fuel price hike will be likely in early October. But Yusril said the government has not decided on the magnitude of the increase.

Cutting fuel subsidies is one of the government's fiscal policies to help the slumping rupiah.

The government's plans to help the rupiah, along with Bank Indonesia's rate hikes twice this month, helped restore foreign investors' confidence.

Short-term government bond prices also recovered, dealers said. The price of government bonds maturing in 2007 rose to 92.5 from 91 on Friday, a dealer said.

Dealers expect that the dollar could continue to head lower, toward Rp 10,000 on Tuesday, with upside resistance at Rp 10,200.

Elsewhere, shares ended higher on Monday on growing expectations that the rupiah will continue to recover after the central bank hiked its key interest rate earlier this month, dealers said.

The stronger rupiah could ease debt service costs of many Indonesian companies, paving the way for more business expansion, analysts said.

"The firmer the rupiah, the better sentiment in the equity market will be," said a trader with Paramitra Securities.

Analysts said investors regained their confidence after the central bank last week raised the main interest rate to 10 percent from 9.5 percent.

The Jakarta Stock Exchange Composite index advanced 0.7 percent, or 7.201 points, to 1105.657. The main index has risen 6.4 percent in the previous six sessions after the interest rate hike.

Gainers led decliners 82 to 37, with 58 stocks unchanged.

Volume, however, fell to 1.33 billion shares valued at Rp 1.6 trillion, compared with 2.2 billion shares valued at Rp 1.8 trillion on Friday.

The stronger rupiah has renewed expectations that purchasing power will remain stable for the rest of the year, spurring bargain hunters to buy back consumer blue chips.

Automotive company Astra International rose 2.3 percent to Rp 11,150 and food producer Indofood advanced 5 percent to Rp 890.

Bank Mandiri, the nation's largest lender by assets, ended up 5.2 percent at Rp 1,410 on renewed hopes that the firmer rupiah will inspire the central bank to stop increasing interest rates.

Retailer Hero Supermarket jumped 25 percent to Rp 4,875 on news that Asian retailer Dairy Farm International Holdings Ltd. wants to buy all Hero stock at Rp 6,351 a share through the open market.

On the downside, bellwether Telekomunikasi Indonesia fell 1.8 percent to Rp 5,600 on profit taking after it gained 12 percent last week.

Dealers said they expect shares to continue to trade higher on Tuesday on followthrough buying in bank and consumer blue chips.