Rupiah to remain under pressure on inflation, high dollar demand
Urip Hudiono, The Jakarta Post, Jakarta
The rupiah may possibly slide to as low as Rp 9,450 per dollar this week, over public expectations of a pick up in inflation and continued strong demand for the greenback from the corporate sector, market analysts say.
Citing domestic factors as the main cause of the weakening rupiah over the past month, analyst Farial Anwar from Currency Group Management highlighted the government's decision to raise fuel prices that increased public inflationary expectations.
Such a situation, Farial explained, would put the local currency under pressure, and would therefore be less attractive to hold on to or to invest in.
"Even as of now, the difference between the interest rate for public savings and the inflation rate is already negative, and is continuing to widen," he said.
"Add to that the ongoing demonstrations against the fuel price increases and the recent row with Malaysia over Ambalat, and the value of the rupiah will continue to be volatile."
Data from the Central Statistics Agency shows that February's one-year inflation rate stood at 7.15 percent. The interest rate on savings accounts and one-month deposits in local banks, meanwhile, currently averages 6 percent.
The rupiah closed at Rp 9,418 to the dollar last Thursday, down from Rp 9,390 the previous day and from last week's opening of Rp 9,360.
Farial went on to say that the pressure on the rupiah would increase, as over the coming week many large corporations in the country would be servicing their quarterly dollar debts.
Meanwhile, on external factors affecting the rupiah, Farial pointed to soaring global oil prices and the U.S. Federal Reserve Bank's recent decision to raise its interest rate to 2.75 percent.
A $2.6 billion debt moratorium from the Paris Club group of creditor nations for Indonesia, Farial said, would unlikely help the rupiah, as the market wants to see a real supply of dollars.
"The oil price rise will particularly affect the rupiah, as state oil and gas company PT Pertamina would need more dollars for its regular oil imports," he said, estimating that the rupiah would likely trade between Rp 9,350 and Rp 9,450 to the dollar.
Likewise, currency analyst Ferry Latuhihin from Danareksa Securities said that there would be no positive sentiment towards the rupiah in the coming weeks.
"The Fed raised its interest rate, global oil prices are still high," he said. "So there is simply nothing available to help lift the rupiah's value."
The Fed's interest rate hike last week sent global markets tumbling, including the Jakarta Stock Exchange, whose composite price index fell 27.5 points to 1,114 points last Thursday, and killing hopes obtaining a fresh supply of dollars from the stock market.
Ferry estimated that the local currency would trade in the range of Rp 9,350 to Rp 9,425 to the dollar.