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Jakarta Post

Rupiah stable now, may decline in 2009

Approaching the year's end, the rupiah seems stable at around 11,000 per U

Aditya Suharmoko, (The Jakarta Post)
Jakarta
Sat, December 27, 2008

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Rupiah stable now, may decline in 2009

Approaching the year's end, the rupiah seems stable at around 11,000 per U.S. dollar, after a wild volatility in the past months -- but it may slightly depreciate entering 2009 as investors buy dollars to pay for their previous transactions.

With only a trading day left in 2008, that is next Tuesday, the rupiah touched 11,188 per dollar at 3:30 p.m. Friday in Jakarta, Bloomberg reported.

The currency fell to 13,150 on Nov. 21, the lowest since August 1998.

Analyst Yanuar Rizki said the rupiah might float between 11,200 and 11,500 per dollar by the year's end, as investors were looking to purchase dollars to pay for their transactions.

"It may further weaken in early next year as investors buy dollars to settle previous transactions," he said.

The rupiah was traded at 9,199 per dollar on Jan. 1, according to the central bank.

Over the past two months, the rupiah has sharply depreciated, prompting the central bank to issue some regulations to limit the purchase of dollars.

One regulation for instance limits the purchase of foreign currencies in the equivalent of above $100,000 through spot, forward, or derivative transactions for Indonesian citizens or firms, by requiring that they provide underlying transactions and a tax file number.

Foreign parties, meanwhile, can purchase that amount of dollars through spot transactions only, subject to supplying the justifying documents.

Another regulation prohibits banks from making dollar transactions based on structured product investments to safeguard the rupiah against speculation.

Yanuar said those regulations helped the central bank maintain its foreign exchange reserves at $50.18 billion on Nov. 28, slightly down from $50.58 billion on Oct. 31.

"However, the central bank should have been more aggressive by limiting global custodians from shifting their rupiah portfolios to dollars," he said.

A custodian is a financial institution responsible for safeguarding the financial assets of a firm or individual.

Yanuar said the portfolio shift from emerging countries, including Indonesia, to developed countries, most notably the U.S., was the main cause for the rupiah's recent slide.

Analyst Farial Anwar has said the rupiah will keep falling as long as foreign and local investors have little confidence in the local currency.

Finance Minister Sri Mulyani Indrawati said earlier the rupiah undervalued as people held onto dollars due to a lack of confidence in other currencies.

The central bank has repeatedly said it will seek to maintain the rupiah at a "good and stable" level, which should factor in Indonesia's macreconomic conditions.

A stable rupiah will help businesses coping with the global economic downturn. Businesses have calculated the rupiah at 12,000 per dollar for imports.

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