Rupiah to end the year unchange

Berni K. Moestafa, The Jakarta Post, Jakarta

With many market participants away on vacation, a generally weak demand for the U.S. dollar and the absence of currency speculators, pressure on the rupiah this week is expected to ease, but not enough to lift the unit from its current lows by year's end, according to one analyst.

Currency and stock market analyst Feri Latuhihin at state owned PT Danareksa Securities predicted quiet trading for the rest of this week.

"I don't see much change for the rupiah; basically it will remain in the trading range that it has been in for the past several days," Feri told The Jakarta Post over the weekend.

Traders expect a short trading week leading to year's end, with some participants likely to skip Monday, as Christmas falls on Tuesday, and many businesses are on leave until next week.

Feri said that, for now, pressure against the rupiah was ebbing but in the longer term the unit would remain fragile.

The local unit has improved slightly in recent weeks, pushed by dollar selling from the Indonesian Bank Restructuring Agency (IBRA), and corporate dollar demand tailing off ahead of year's end.

Last Friday the rupiah, however, closed the week lower at 10,180 against the dollar from 10,100 a week before. Feri warned that the past weeks' gains may not be sustainable.

"I am afraid there is an underlying demand for the dollar that will drag the rupiah down for longer periods," Feri said.

A sign of this is the still high swap rate for the rupiah in the forward currency market. He said that annualized rates stood at about 19 percent to 20 percent.

"The expensive swap rates shows that demand for the dollar is expected to remain high in the longer term," he explained.

A huge foreign debt overhang and fear of inadequate dollar supplies next year will keep pressure on the rupiah, he said.

Feri estimated short falls from main dollar sources like export sales, foreign direct investment, and state asset sales.

As questions linger on when the global economy will pick up, the plunge in export sales may be prolonged for an uncertain period.

"Our export sales will continue to decline as long as the global economy does," he said.

The slump in the global economy drains out foreign capital as more international investors avoid risky emerging markets such as Indonesia.

While at home, poor legal certainty and rampant security problems continue to block the inflow of foreign investment.

The bleak prognosis weighs on the rupiah, and overshadows its potential to rise amid current low pressure, according to Feri.

On the stock market, the Jakarta Stock Exchange (JSX) Composite Index gained slightly on what some said were window- dressing transactions.

Analysts said that ahead of year's end, window dressing was common as fund management firms submit reports on their portfolio performances.

In order to make their reports look good, these firms might have agreed to prop up prices of certain stocks.

The JSX index ended the week last Friday at 378.25 up from 374.69 in the previous trading week.