Rupiah up on plan to cut fuel subsidies

Rupiah up on plan to cut fuel subsidies

Bloomberg, Jakarta

The rupiah rose for a fifth day after the government said it may increase fuel prices in October to cut energy subsidies.

The plan to reduce subsidies that are threatening efforts to narrow the budget deficit helped the rupiah rise from a four- year low reached on Aug. 30. Record crude oil prices have led to surging demand for dollars, weighing on the currency.

"Sentiment for the rupiah has been recovering," said Tetsuo Yoshikoshi, market analyst of the Treasury unit in Singapore at Sumitomo Mitsui Banking Corp., a branch of Japan's third-biggest lender. "A subsidy cut will reduce the deficit and help decrease demand for oil."

The rupiah rose 0.8 percent to 9,928 to the dollar as of 5:17 p.m. in Jakarta. The currency may advance to 9,800 by the end of this month, Yoshikoshi said.

"If we increase by October, the minimum is going to be 5 percent" and fuel prices will be raised gradually to cover costs within 36 months, State Minister of National Development Planning Sri Mulyani Indrawati said earlier this week.

Meanwhile, stocks fell for a third day. Bellwether PT Telekomunikasi Indonesia (Telkom) led the decline after oil prices surged the most this month, adding to concern the government may boost fuel prices more than expected to cut its subsidy bill.

"Oil is at the heart of the nervousness in the market," said Alvin Pattisahusiwa, who helps manage the equivalent of $287 million at Fortis Investments in Jakarta. "As long as oil's going up, then those concerns are going to stay."

The Jakarta Composite Index fell 7.72, or 0.7 percent, to 1050.90 at the 4 p.m. close, after earlier rising as much as 0.3 percent. Seven stocks dropped for every four that gained.

The benchmark has slumped 12 percent from a record high on Aug. 3 as surging oil prices have prompted the government to consider cutting fuel subsidies to avoid a budgetary crisis. Indonesia is the only member of OPEC that is a net oil importer.

Telkom, Indonesia's largest phone company, dropped Rp 50, or 1 percent, to Rp 5,000 on concern higher fuel costs will damp consumer spending and boost operating costs. PT Astra International, the nation's biggest auto retailer, lost Rp 350, or 3.3 percent, to Rp 10,300. PT Unilever Indonesia, the local unit of the world's biggest manufacturer of food and soap, declined Rp 25, or 0.7 percent, to Rp 3,800.

Elsewhere, PT International Nickel Indonesia (Inco) climbed Rp 400, or 2.7 percent, to Rp 15,000 after analysts at PT Danareksa Sekuritas said the company's dividend yield will support share prices. It has a dividend yield of 3.1 percent compared with a yield of 2 percent for the Morgan Stanley Capital International Asia-Pacific Index, a regional benchmark.

The government on Sept. 13 asked International Nickel, a unit of Canada's Inco Ltd., to raise royalty payments to the state by as much as 2 percent if the miner goes ahead with an expansion plan, Investor Daily Indonesia said, citing an energy ministry official.

"The management's decision to agree on the higher royalty payment for the new project should smooth the process of obtaining approval," Jakarta-based Danareksa said in a note to clients on Thursday. Its "attractive dividend yield provides a cushion for the share price."