Rupiah makes up some ground -- for now

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Sat, 11/15/2008 10:58 AM  |  Headlines

The rupiah strengthened Friday against the United States dollar despite investors' weak appetite for Indonesian assets following the central bank's recent restrictions on foreign exchange transactions.

The rupiah was trading at 11,615 per dollar at 4:26 p.m. in Jakarta, after a drop of 6.2 percent this week, Bloomberg reported. The currency was sold at 11,800 at 4:11 p.m. yesterday, after reaching its lowest point of 11,988 on Thursday afternoon.

Bank Indonesia (BI) governor Boediono said BI would remain in the market to inject dollars to help reduce the volatility of the rupiah.

"Our intervention policy will continue. As I mention from time to time, we are always in the market, but of course not to operate against the market," he said.

According to Boediono, the central bank's foreign exchange reserves of $50 billion are sufficient to cushion the economy against the slump in the rupiah and to iron out fluctuations.

"In December, we are expecting (an additional) $2 billion from the government's borrowing program," he said.

Standard Chartered Bank senior economist Fauzi Ichsan said the strengthening of the rupiah was basically a technical correction in response to BI's recent foreign exchange policy.

"It was a technical correction. The rupiah is strengthening because of the psychological impact of the BI regulation," he said.

A technical correction is defined as a decrease in price (of the dollar against the rupiah in this case) after a series of increases, although there is no evidence as to when the increasing price trend for the dollar might stop.

Fauzi believed the market, including foreign companies and exporters, was still holding onto dollars because of fear that they might have difficulties in securing greenbacks later.

"Exporters are being hit by the decline in commodity prices. They hold dollars to minimize their losses," he said, adding that demand for the U.S. currency remained high while supply was limited.

The new BI regulation requires Indonesian citizens or firms to provide a tax file number and evidence of justifying transactions when purchasing more than US$100,000 in foreign currency via spot, forward and derivative transactions.

Foreign parties can only purchase foreign currencies above $100,000 through spot transactions.

Meanwhile, five-year government bonds fell for a second day on concern the weakening rupiah would discourage overseas investors from buying the securities, according to Bloomberg.

The yield on the 9 percent note due September 2013 climbed 1.08 percentage points to 15.79 percent, according to closing prices at the Inter Dealer Market Association. The price fell 3.1017, or Rp 31,017 per Rp 1 million face amount, to 77.625. A basis point is equivalent to a 0.01 percentage point.

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