Rupiah strengthens after BI inspects foreign banks

Rupiah strengthens after BI inspects foreign banks

The Jakarta Post
Jakarta

The rupiah rebounded slightly on Friday amid market talks that
Bank Indonesia had sent inspectors to foreign banks that were
aggressively selling the local unit.

Bank Indonesia confirmed that it had dispatched officials to
some banks earlier in the day.

"We want to determined whether their dollar buying was backed
by genuine underlying transactions or whether it was for
speculative purposes," a central bank official was quoted by Dow
Jones as saying.

The rupiah closed slightly higher at Rp 8,520 per U.S. dollar
from 8,590 on Thursday.

After rising rapidly against the U.S. dollar during the first
six months of this year, the local unit started to weaken two
weeks ago, and worsened over the past few days, prompting the
central bank to intervene by selling dollars to reduce
volatility. At one point, the rupiah fell to a three-month low of
8,730.

Top Bank Indonesia officials tried to calm the market by
saying that the drop in the value of the rupiah would be
temporary as the country's economic fundamentals remained sound,
coupled with relatively stronger foreign exchange reserves of
about US$35 billion, which should be enough to finance more than
eight months of imports and defend the unit against the sudden
outflow of "hot money".

Bank Indonesia senior deputy governor Anwar Nasution voiced
confidence that the rupiah could rebound to the 8,200 level.

He explained that fluctuation in the rupiah's exchange rate
was a normal consequence of the floating exchange rate system,
adopted by the country in 1997.

He also said there was no reason for people to be wary about
the Annual Session of the People's Consultative Assembly (MPR) in
August.

Some dealers previously said that rising political tension
ahead of the MPR session, as well as other factors like dollar
purchases by companies to repay foreign debts and a switch to
dollar assets by those betting on a rebound in the U.S. economy
this year, would have a negative impact on the rupiah.

Citibank economist Anton Gunawan said that investors had been
waiting to cash in their gains from the earlier surge in the
rupiah, which became possible after positive remarks made by
Federal Reserve chairman Alan Greenspan last week about the U.S.
economy prompted the dollar to strengthen. The drop in the rupiah
was accelerated by panic among domestic investors.

But Anton also opined that the drop in the rupiah would be
short-lived, applauding the inspection measures taken by Bank
Indonesia at some banks, particularly those that had been
aggressive sellers of the rupiah.

"This (measure) should effectively guard the rupiah and deter
speculation (against the rupiah)," he told The Jakarta Post.

"Over the next month, the rupiah could recover to around
8,400," he said, pointing out that the upcoming privatization of
state-owned enterprises would create capital inflow and help
strengthen the local unit.

Meanwhile, shares on the Jakarta Stock Exchange (JSX), which
had weakened during the previous four days, ended 1 percent
higher at 510.08 on Friday on the back of the strengthening
rupiah.

The weakening of the rupiah is feared to impose heavier burden
on companies saddled with huge foreign debts.

Gainers led decliners 82 to 29, with 83 stocks unchanged.

Bank Central Asia led gainers, rising 4.6 percent to Rp 2,825,
on a rebound after falling 5.3 percent in the past four sessions.