Rupiah to hover at narrow range as pressure stays

Urip Hudiono, The Jakarta Post, Jakarta

With demand for the U.S. dollar still high, the rupiah is unlikely to weather any more gains from Bank Indonesia's (BI) latest anti-speculative forex measure to remain flat at its current rate of Rp 9,600 to the greenback this week and next.

Increasing month-end corporate dollar demand for import needs and servicing debts will prove to be a major factor weighing down on the rupiah, said analysts, balancing out a recent uplifting market sentiment from the central bank's plan.

"The end result will only be a less volatile rupiah over the week, but it will still trade somewhere at the Rp 9,600 per dollar level," currency analyst Farial Anwar from the Currency Management Group told The Jakarta Post over the weekend.

"The market will from then on wait and see for further developments of the situation, being cautious not to trade the rupiah beyond the Rp 9,700 level."

The rupiah closed its trading last week at Rp 9,650 a dollar on Friday, down from its Rp 9,620 level the previous week.

The local currency had slipped to Rp 9,665 per dollar on the back of increasing dollar demand from state oil and gas firm PT Pertamina for oil imports to secure the country's recently declining fuel stock.

The rupiah, however, later gained from BI's announcement of its new regulation to limit next month all incoming dollar loans and investments without underlying assets to a maximum of $1 million. It expects the new regulation will be able to curb speculative dollar trading, which could otherwise disturb the rupiah's exchange stability.

BI had previously supported the rupiah as well when it recently touched the Rp 9,700 level, by increasing the frequency of its SBI promissory notes auctions to absorb excess liquidity in the market, and required higher reserves from commercial banks stashed in Bank Indonesia in order to limit any room for speculative dollar trading.

The central bank has also coordinated with the government to help provide Pertamina's dollar demand to prevent the oil and gas company from directly purchasing it in the spot market.

Under the 2002 state budget revision, the government targets a rupiah exchange rate of Rp 9,300 per dollar.

Farial explained that Pertamina's dollar demand will nevertheless still be the most dominant factor in putting pressure on the market in the coming weeks, as the firm is still racing with time to raise the country's fuel stock to a secure level.

"The dollar demand could even increase considering oil prices have recently touched $60 a barrel," he said.

"Meanwhile, further dollar demand can also be expected as next week will be the end of the month, when corporations usually have to service their foreign debts."

Farial also doubted that BI's new anti-speculative foreign exchange regulation would help support the rupiah in the long run, as speculators could easily find loopholes in it.

"Speculators can bypass the underlying assets requirement by setting up mock firms here, or splitting their speculative dollar stock below the $1 million limit," he said.

"The central bank must therefore strictly enforce the regulation to prevent this."