Rupiah rebounds as tension eases
Rupiah rebounds as tension eases
JAKARTA (JP): A peaceful Jakarta on the second day of the
climax of the political fight between President Abdurrahman Wahid
and legislators lent strength to the ailing rupiah.
Forex dealers said that the rupiah reached an intraday high of
Rp 10,750 against the U.S. dollar as political tensions and
worries over possible riots cooled down.
The Indonesian currency however weakened in the afternoon to
close the day at Rp 11,050 but it was still much higher than Rp
11,600 at Monday's close.
Kahlil Rowter, head of fixed income research at PT Danareksa
Securities, said the market had been spooked by predictions of
clashes between supporters and critics of President Abdurrahman
Wahid.
Other doomsday scenarios involved violent clashes with
security personnel and the President's supporters running amok in
Jakarta once news of a second censure against him was out.
As none of these happened, Kahlil said, a relieved market
deflated their long dollar positions.
"The expectation of violence had simply escalated, the market
had built up on it (fear) for too long," Kahlil said.
Concerns that the political stand off between the President
and legislators would trigger a full scale riot in Jakarta, had
fueled the dollar's gains in the past few weeks.
In the lead up to the House's special plenary session which
had censured the President, thousands of his supporters entered
Jakarta.
They took part in a mass prayer held by Nahdlatul Ulama, an
organization President Abdurrahman once led.
But as legislators passed its second censure against him on
Monday evening, his supporters were already peacefully leaving
Jakarta.
Even the International Labor Day, which fell on Tuesday,
passed by relatively calm. The market took no notice of news of
minor scuffles between police and rallying labors.
Kahlil said those who had purchased the dollar at Rp 10,000
were seen selling the foreign unit on Tuesday.
"They (the market) assume that things can't get any worse than
it is now, at least in the immediate future," he said.
He said that prevailing corporate demand for the dollar
absorbed the fresh supply from speculators. "Without corporate
demand accommodating the dollar sell off, the rupiah could not
have strengthened so quickly," he explained.
He said some companies picked up the dollar to average down
the dollar's cost. Before, they had purchased the foreign unit at
a higher quote.
He also estimated Bank Indonesia had seized the momentum to
add pressure on dollar holders through minor intervention.
According to him, Bank Indonesia's habit is to intervene on a
recovering rupiah, unless the unit gets close to falling below an
important psychological barrier.
Kahlil estimated the rupiah's upward trend would continue in
the coming days.
"The question is for how long will this mini euphoria last,"
he said.
He said the rupiah recovered on news that nothing bad had
happened, instead of positive economic or political developments.
The market would also run out of dollar supplies, if the unit
slides to the 10,000 mark.
A stronger rupiah has also helped the Jakarta Stock Exchange
Composite Index which rose to 362.22 on Tuesday trading, from its
previous day closing at 358.23.
Kahlil said the rupiah's recovery could pave the way for
foreign investors to hunt local stocks.
Foreign investors, he said, would convert their dollars into
rupiah to purchase local shares. This process would prop up both
the rupiah and the stock market index.
Once the rupiah and the market index increases to a
"comfortable level", he said, investors would sell the shares on
profit taking.
Aside from a capital gain in the stock market, foreign
investors would also profit from a cheaper dollar, once they sold
their rupiah. (bkm)