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.