Rupiah to remain stable this week, say analysts
JAKARTA (JP): The rupiah will remain stable during the whole of this week despite fears that the currency would continue to be under pressure from the U.S. dollar buying spree from corporations wanting to repay their debts, an analyst said over the weekend.
Currency analyst at PT Vickers Ballas Indonesia Wiwan Wiradjaja predicted the rupiah would hover between Rp 8,700 and Rp 9,000 to the dollar throughout the week.
On Friday the rupiah closed at Rp 8,860 to the dollar compared to Rp 8,925 the previous day.
Wiwan said that he expected last week's U.S. dollar demand to remain high throughout this week as more corporations would want to take opportunity from the current strong rupiah exchange rate to repay their debts.
"Corporations have probably calculated their budget using exchange rates of between Rp 10,000 and Rp 11,000 to the dollar. Seeing the rupiah strengthening to this level they would feel that this was an opportune time to buy," he said.
However, Wiwan downplayed fears that the high corporate dollar demand would put more pressure on the rupiah like it did last week when the rupiah closed at Rp 9,175 on Wednesday from Rp 8,970 the previous day.
There are also worries that local banks would buy dollars to pay off their debt maturing this year to overseas creditors, which will add to the pressure on the rupiah. But Wiwan dismissed the worries, saying some of the banks had bought back their debt over the past several years.
In 1998, domestic banks reached the so-named Frankfurt Agreement with foreign creditors to extend their debt maturing in the 1999 fiscal year for between one to four years. Bank Indonesia agreed to guarantee the debt payment.
Wiwan said that some of the indebted banks had bought back their bonds between 1999 and 2001.
"That means when the debt matures this year, the banks won't need to buy more dollars," he said.
On the stock market, the Jakarta Stock Exchange (JSX) Composite Index fell to 435.55 on Friday from 441.22 the week before.
Stock analyst Dandossi Matram of PT Kimia Farma said that the stock market would remain stagnant for the rest of this week as the market would continue its wait-and-see attitude.
He said that traders should brace for a downward trend of the market in the coming weeks as the global economic downturn continued to worsen.
"The negative factors outweigh the positive, so although it would be slight, we should see a weakening on the index this week," Dandossi said.
He said that equity investment was a thing to be avoided at the moment, even in international markets which tended to lean toward a recession.
Trading would be slim throughout the week and its value would range between Rp 200 billion (about US$22.6 million) to Rp 300 billion a day, Dandossi said.
Trading value ranged at around Rp 380 billion at the beginning of the week but dropped to Rp 268.1 billion on Thursday and closed at Rp 269.2 billion on Friday.
Another negative sentiment was the unlikely possibility that Bank Indonesia would lessen its tight money policy following the agreement with the International Monetary Fund (IMF) that the supply of primary money would be maintained at Rp 110 trillion in September, as against above Rp 112 trillion at present, Dandossi said.
"This means that Bank Indonesia would not be able to reduce the interest rate of its one-month SBI promissory notes," he said, explaining that the lowering of the interest rate would result in a larger supply of primary money.
Primary money refers to the volume of currency in circulation, in addition to funds held at banks and the reserve funds of broker banks deposited at Bank Indonesia (BI).
"The stock market will not be attractive as long as BI doesn't lower its interest rate and I don't think they will until the end of the year," Dandossi said, adding that at high interest rates, investors would rather put their money in banks than on the stock market.(tnt)