Rupiah to remain under pressure
Dadan Wijaksana, The Jakarta Post, Jakarta
Following a two percent drop last week, the rupiah's roller- coaster performance against the U.S. dollar is expected to continue this week as the market would remain cautious, awaiting fresh news, currency analysts said.
DBS Vickers analyst Wiwan Wiradjaja predicted the local unit would continue to decline, saying the absence of positive market sentiment would put additional pressure on the rupiah, already hit by recent "unwise" statements from the monetary authority.
"The rupiah will tend to weaken this week, hovering between Rp 8,900 to Rp 9,100 while the market applies a wait and see approach," Wiwan told The Jakarta Post on Sunday.
After reaching around Rp 8,400 midweek, the strongest level in nine months, the rupiah fell sharply against the U.S. currency partly because of remarks by Bank Indonesia deputy governor Miranda Goeltom, saying the safe level for the Indonesian unit was between Rp 8,500 and Rp 9,000.
The statement prompted a fall in the rupiah over the following days to over Rp 9,000 per U.S. dollar.
However, thanks to Bank Indonesia intervention on Friday, the local currency edged upwards again to close the week at Rp 8,870, a depreciation of almost two percent compared to the previous week's close of Rp 8,700.
Wiwan was of the opinion that such statements would have nothing but a negative impact on the rupiah.
A dealer in a local brokerage concurred, saying that as an official of the monetary authority, Miranda should know how sensitive the market would be in responding to such a statement.
"Look at the damage it did. The rupiah will now find it difficult to claw its way up again against the dollar," he told the Post.
Also hurting the rupiah would be lingering fears of security disturbances and confusion about the government's Bank Niaga divestment plan.
Three bombs exploded in downtown Jakarta early on Sunday, injuring four people. This could create a perception that the government had difficulty in maintaining security, and would eventually affect the rupiah in a negative way, Wiwan said, unless the government responded as quickly as possible.
As for the Bank Niaga sale, if the government were to cancel it, this would hurt relations with the International Monetary Fund, which in turn would affect investor confidence in the economy, seen as a crucial factor in helping the rupiah.
Certain top government officials had earlier suggested that the strategic sale of the Bank Niaga stake be delayed due to the low levels of the bids submitted.
Meanwhile, in the Jakarta stock market, the Composite Index would likely remain flat with a strong tendency to decline due to the uncertainties surrounding the Bank Niaga sale and the rights issue plan of state-owned telecommunications firm PT Indosat.
"The government has to clarify the situation regarding Indosat and Niaga, or else the players will not enter the market," a stockbroker with a local bank said.
Last week, the index fell 3.2 percent to close at 514.09 points, compared to 530 points the week before.
Shares in state-owned telecommunications firm Telkom dropped by Rp 125 over the week to close at Rp 3,950 per share, while Indosat closed Rp 400 lower over the week at Rp 11,350.
Cigarette maker Sampoerna lost Rp 225 over the week at Rp 4,350 while rival Gudang Garam dropped Rp 150 over the week to Rp 10,700.
Daily volume averaged 481.34 million shares valued at Rp 386.44 billion ($43.51 million) compared to the previous week's 861 million shares valued at Rp 534.3 billion.