Rupiah to gain strength this week: Sjahril

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin expressed confidence Saturday that the rupiah would strengthen again this week after last week's plunge.

"Hopefully, after suffering from a shock (the rupiah) will become normal again," he told reporters at the state palace after attending a ceremony.

He reaffirmed that the rupiah's ideal level was at between Rp 6,000 to Rp 7,000 per U.S. dollar.

Sjahril said that if the rupiah weakened to below Rp 7,000 to the dollar, the level was "unrealistic".

But market players do not seem to share Sjahril's optimism.

Traders said that the rupiah as well as other regional currencies would maintain their downward trend this week.

"The rupiah is likely to re-test its three-month low because the sentiment is still negative," said a trader, pointing to domestic political uncertainty, the banking scandal and overall regional bearishness.

"If developments in the banking sector continue to worsen, the rupiah will surely drop pass the Rp 8,000 level," he added.

Dealers also said that trading sessions this week would be quieter due to a longer weekend because of Tuesday's Independence Day celebration.

The rupiah ended Friday at Rp 7,925 per dollar, compared to Rp 6,962 in the previous week. The unit plunged to a two-and-a-half month low of Rp 8,250 per dollar on Thursday.

Dealers said that state banks intervened in the market by purchasing rupiah, preventing it from a much more serious fall.

Traders said that the rupiah was under heavy pressure due to fresh banking scandal revelations, political uncertainty, falling yields as interest rates drop, and regional bearish sentiment.

The Bank Bali scandal, in which some Rp 545 billion was quietly transferred from the bank into the account of a company owned by businessmen affiliated to the ruling Golkar Party, has sent tremors through the local financial and stock markets.

Reports also said that other senior government officials and a deputy chairman of the Indonesian Bank Restructuring Agency (IBRA) were involved.

The scandal was disclosed late last month, and the government has yet to complete the investigation process.

"The Bank Bali scam has deteriorated confidence in the country. The market is now watching how the government settles the case," said economist Marie Pangestu of the Centre for Strategic and International Studies.

"The real culprits have to be caught," she said, adding that if the government failed to settle the case in a credible way confidence would not return.

Another banking development that created jitters in the financial market was the major reshuffle of the board of directors and commissioners of Bank Internasional Indonesia (BII), the country's largest private bank.

BII president Indra Widjaja and his father Eka Tjipta Widjaja as the bank's chairman have to step down because they failed to pass the central bank's "fit and proper test", reports said.

The Widjaja family controls Indonesia's second-largest conglomerate, the Sinar Mas Group. BII is the group's financial flagship.

A rumor that Minister of Finance Bambang Subianto had resigned also worsened market sentiment on Friday.

But Bambang's close associate denied the rumor. "I just met with Bambang today, and he said that he won't resign amid the current hectic situation," he told The Jakarta Post.

The rupiah has also been hit by increasing political uncertainty in the leadup to the upcoming November presidential election.

The decline in the central bank benchmark interest rate to 13.03 percent last week had also contributed to a drop in the local currency, traders said. (rei/prb)