Rupiah to hover at narrow range as pressure stays

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."