Rupiah to weaken, stock market to strengthen: Analysts

JAKARTA (JP): The rupiah will remain weak this week owing to dollar buying by companies paying off debts, while the stock market is expected to strengthen thanks to the strong buying desire of traders, analysts say.

Wiwan Wiradjaja, a currency analyst at PT Vickers Ballas Indonesia, said that the possibility of a dollar-buying spree by corporations wanting to pay off their debts, which were due to mature this year, would put pressure on the currency.

"Corporate debt payments to foreign creditors will put the rupiah under pressure. I estimate the demand for currency will still be high," Wiwan told The Jakarta Post on Saturday.

"As the rupiah tended to weaken over the past two weeks, I think the rupiah will hover between Rp 9,000 and Rp 9,200 against the dollar," he added.

The rupiah closed at Rp 9,075 on Friday compared to Rp 8,860 the week before as state banks bought dollars on behalf of state oil and gas company Pertamina, which needs cash to pay its debts, traders said.

The 2002 draft state budget unveiled by President Megawati Soekarnoputri on Friday and praised by many analysts looks to have failed to prop up the rupiah as the currency dropped that day from Rp 9,030 a day earlier.

Wiwan stressed the importance of local enterprises to hammer out debt restructuring agreements with their creditors to help ease the pressure on the rupiah.

Slow economic recovery, after the financial crisis struck in mid 1997, has resulted in the failure of local businesses to repay most of their foreign debts.

That forced enterprises to seek fresh deals with creditors to restructure their matured debts.

Under the Frankfurt Agreement in 1998, domestic banks reached a deal with their lenders that allowed them to extend their debts until the 1999 fiscal year. Bank Indonesia agreed to guarantee debt payments.

"Further deals on their debt restructuring scheme would help ease the pressure on the rupiah," Wiwan said.

In contrast to the weakening trend of the rupiah, stock analyst Adrian Rusman said that the Jakarta Stock Exchange (JSX) Composite Index was expected to continue to increase, as it had over the last two weeks.

The BNI Securities analyst stated that the index would reach as high as 455 points this week on speculative buying.

On Friday, the index rose to 443.81 from 435.55 the previous week.

"This increasing trend will continue this week on several factors," Adrian said on Saturday.

"First, the index has surpassed the resistance level of 433 on the back of the increase in trading volume, which indicates a strong buying desire from traders.

"This week, that level of resistance will become the support level," he said, adding that the index would start to pick up by Tuesday or Wednesday.

Adrian said other factors that were expected to stimulate growth in the index would be the recent slide of the rupiah and the possibility of the central bank easing its tight monetary policy by lowering the interest of its promissory notes (SBIs).

BI could be forced to cut the SBI rate if the U.S. Federal Reserve Bank lowers its federal funds' rate, as expected by many analysts.

The U.S. unemployment rate soared to a four-year high in August as companies removed 113,000 workers from their payrolls, the government said on Friday.

Economists were stunned by the weakness in the jobs report and predicted more Federal Reserve interest rate cuts.

Adrian said the Fed's move to cut its interest rate would likely be followed by many countries, including Indonesia.

The interest rate on SBIs is currently 17.67 percent. (10)