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Rupiah posts eighth weekly loss on risk aversion

The rupiah declined for an eighth week, the longest stretch since June 2004, on concern the global recession is discouraging overseas investors from buying risky assets, Bloomberg reported

Aditya Suharmoko (The Jakarta Post)
JAKARTA
Sat, March 7, 2009

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Rupiah posts eighth weekly loss on risk aversion

The rupiah declined for an eighth week, the longest stretch since June 2004, on concern the global recession is discouraging overseas investors from buying risky assets, Bloomberg reported.

The currency lost 7.5 percent this year, the third worst among the 10 most-active currencies in Asia outside Japan, as stock exchange data show sales of local shares by overseas investors exceeded purchases.

“Near term, it’s still going to be a struggle for the rupiah because it is perceived as relatively risky,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney as quoted by Bloomberg. “There’s a lack of global investor appetite for growth plays, for risk. Near term, the dollar-rupiah will keep crawling toward 12,500.”

The rupiah dropped 0.2 percent this week to 12,000 as of 4:22 p.m. in Jakarta, according to data compiled by Bloomberg. The currency rose 0.6 percent Friday.

Non-deliverable forwards contracts signal traders are betting the rupiah will weaken 1.8 percent to 12,218 per dollar in a month, after indicating a rate of 12,285 Thursday.  according to Bloomberg. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date.

Meanwhile, Indonesia’s foreign exchange reserves rose to US$53.75 billion after the government secured $3b from the sale of bonds, says Bank Indonesia (BI) senior deputy governor Miranda S. Goeltom.

She said on Friday that the recent bond sale had strengthened the bank’s capacity to safeguard the rupiah. Until recently foreign exchange reserves only totaled $50.56 billion.  

Miranda said Indonesia was currently in talks with Australia about a bilateral swap agreement (BSA) to add more to the forex reserves.

“The [latest] BSA development we’ve agreed with Japan is for $12 billion, China $4 billion and (South) Korea $2 billion,” Miranda said.

The BSAs are part of the Chiang Mai Initiative framework established by ASEAN+3 since 2000.

Indonesia has also secured $5.5 billion in standby facilities from the World Bank and the Asian Development Bank, as well as the governments of Australia and Japan. These funds can be used when other financing sources, such as bonds, have been optimized, and can be used to fill gaps in the budget.

Furthermore, the Finance Ministry said it would also issue a dollar-denominated global Islamic bond (sukuk) later this year, and a  yen-denominated bond, known as  a  samurai bond, in June.

The Finance Ministry’s director of sharia financing policy, Dahlan Siamat, said the government had Rp 7 trillion in underlying assets to back the global sukuk bond issue.

BI deputy governor Hartadi A. Sarwono said earlier that the government hoped to issue $500 million of global sukuk bonds this year.

All these measures was aimed at helping the government plug this year’s widening budget shortfall amidst the global economic crisis. The deficit will be equal to about 2.6 percent of gross domestic product (GDP), with the forecast gap at Rp 136.9 trillion compared to the original forecast of Rp 51.3 trillion.

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