Rupiah hits 7,950 to dollar despite political tension

JAKARTA (JP): The rupiah broke through the important 8,000 psychological barrier to hit an intraday high at 7,950 against the U.S. dollar on Tuesday buoyed by the day's peaceful proceedings of the Special Session of the People's Consultative Assembly (MPR), currency dealers said.

They said that intervention by the central bank, which stepped into the market through certain offshore banks, also contributed to a stronger rupiah.

"Unlike the previous days, the central bank sold its dollars for rupiah through several offshore banks," a chief dealer with a joint venture bank said.

Dealers said that the rupiah, which was traded thinly, closed slightly firmer at 8,100 to the dollar Tuesday as offshore banks kept on selling dollars.

"Bank Indonesia unloaded dollars for rupiah when the rupiah was at the 8,500 and 8,300 levels," the dealer said.

The rupiah's close on Tuesday was 4 percent firmer than its Monday close at 8,450.

Dealers said that positive comments by the International Monetary Fund (IMF)'s officials who said that the beleaguered rupiah still had more room to appreciate against the American dollar also helped to uplift market sentiment.

IMF's first managing director Stanley Fischer said in Canberra Tuesday that a rupiah-dollar exchange rate of between 6,500 and 7,000 against the American dollar was deemed sustainable.

"If the currency were to stop in the vicinity of 6,500 to 7,000 to the dollar, you would find yourself with a devaluation in real terms roughly similar to that in the other crisis countries in the region of 25 percent to 35 percent," Fischer said as quoted by Dow Jones Newswires.

"That should be sustainable," Fischer said.

Governor of Bank Indonesia Sjahril Sabirin said that Fischer's comments were realistic given the peaceful proceedings of the Special Session of the MPR on Tuesday.

However, most currency dealers said many market players were sill uncertain about the security for the remaining three days of the session.

"Despite the rupiah's strong gains on Tuesday, the market's general tone remains bearish for the rupiah in the coming days," another dealer said, pointing out that the currency was predicted to swing between 8,000 and 9,000 in the days ahead.

Unlike the rupiah, stock prices in the local market declined with the main price gauge falling 1.9 percent (7.08 points) to 357.30 on a total turnover of 324.92 million shares changing hands for Rp 432.18 billion (US$53.35 million).

Stockbrokers said that lack of fresh leads at home coupled with market speculation that the country's political worries would turn tumultuous had kept share prices under severe selling pressures.

"I think investors are scared to buy at this point in time as political concerns may lead to more political tumult," analyst Johanes Salim of Mashill Jaya Securities said.

Analysts said that persistent calls by Indonesian political groups demanding the assembly brings former president Soeharto to court for the alleged corruption during his 32-year regime and to scrap the military's role in the parliament might further fuel political tension.

"Differing stances on this may result in another huge round of violence," another analyst warned. (rei/aly)