Rupiah, stocks enter consolidation period: Analysts
The Jakarta Post Jakarta
Analysts expect the rupiah and the Jakarta Composite Index to move within a narrow range this week, as the currency and the stock market consolidate while awaiting fresh stimulus.
Farial Anwar, currency analyst at the Currency Management Group, said a lack of stimulus to drive the market would temporarily stall the rupiah's upward movement, although the overall sentiment would remain relatively positive.
"The market is currently losing its drive, and the local unit will stabilize in the familiar range of between Rp 9,200 and Rp 9,400 this week," Farial told The Jakarta Post over the weekend.
Last week, the local unit closed lower at Rp 9,350 against the American dollar, compared to Rp 9,300 the previous week.
Farial noted, however, that should the government manage to maintain the positive sentiment in the currency, as it had over the past couple of months, the rupiah still had a good chance to strengthen further.
Since the beginning of the year, the government has succeeded in creating positive sentiments among market players by successfully achieving a number of economic reform targets.
The smooth sale of Bank Central Asia (BCA), coupled with the government's success in reaching a debt rescheduling deal with foreign creditors grouped in the Paris Club, demonstrated to investors the government's commitment to economic reform.
This has helped revive investor confidence in the country, moving them to reenter the country. The strengthening of the rupiah over the past several months has been partly ascribed to this capital inflow.
The local currency has appreciated by 10 percent from its value in January.
Farial was optimistic the rupiah would continue to gain ground on the dollar if the government was consistent in implementing its economic reform programs, including the divestment of ownership in several banks and the privatization of state-owned enterprises.
Bank Niaga is currently being offered to investors in a divestment process the government hopes to finalize by June. The sales of Bank Internasional Indonesia (BII), Bank Lippo and Bank Danamon are next on the list.
The government also plans to sell off its majority stake in Indosat, the publicly listed international phone operator.
"If these plans can be carried out on schedule, it would be positive for the rupiah," Farial added.
A dealer at a local brokerage said there was currently a lack of positive news to ignite the market, but added that the rupiah would not be under pressure because of the absence of bad news.
"There is no bad news at the moment that could really put pressure on the rupiah. So the rupiah will not change much this week," he said over the weekend.
Looking at the coming week for the stock market, a slight correction is expected this week, but any movement should be limited in a narrow range, said stock analysts.
David Chang, a director of Vickers Ballas, told the Post that the index would likely go down a bit on fears of higher inflation because of the recent hike in fuel prices.
"It (the index) is going to consolidate and cool down for this week," David said.
The index rose 0.8 percent last week to close at 544.083 points, from 539.96 the previous week.
Daily volume averaged 873.03 million shares valued at Rp 464.64 billion (US$50 million), compared to the previous week's 1.34 billion shares worth Rp 676.8 billion.
David said that after rising sharply since the beginning of the year, the index would eventually run out of steam, making a correction inevitable.
"It's time for (the index) to consolidate," he said.
Just as the rupiah, the stock market has been enjoying active trading for the last several months, during which time the index jumped by some 40 percent.