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Despite a surge last week, the rupiah will likely remain
under close central bank guard as market volatility resulting from U.S.
housing loan problems could resurface, analysts say.
Local shares, meanwhile, are likely to follow global market trends,
while the latest inflation data due today will also likely have an
effect.
On the rupiah, currency analyst Edwin Gunawan said Bank Indonesia (BI)
will keep a tight leash on the currency's movements so as to keep it at
around Rp 9,400 against the U.S. dollar.
"BI's tight control will ensure the rupiah trades within a narrower
band," Edwin was quoted by Antara as saying.
"Next week, estimates for the rupiah are between Rp 9,375 and Rp 9,400
to the dollar."
The central bank will remain in the market to support the rupiah in
seeking a newer level, as there is still the possibility that the
market volatility from the problems in the U.S. subprime mortgage
market could resurface.
The rupiah weakened recently after BI carried out only limited
intervention in the market, he said.
The rupiah closed higher last week at Rp 9,395, up from Thursday's Rp
9.415. For the week, the Indonesia currency was slightly stronger than
the previous week's Rp 9,405.
Edwin said that the rupiah should strengthen on the back of Indonesia's
improving economic indicators, especially if the U.S. Federal Reserve
were to cut its rate again.
BI's benchmark interest rate currently stands at 8.25 percent.
Other analysts differed, however, given that Asian currencies recorded
losses last month as investors reduced their holdings in the region on
concerns that the subprime mortgage crisis could slow U.S. economic
growth, thereby damping demand for Asian exports to their main market.
"The tone is one of caution now, where initially the focus was on
chasing returns and discounting risk," Forecast Singapore economist
Varathan was quoted as saying by Bloomberg.
"When things suddenly take a U-turn, the rupiah would be one of the
first Asian currencies to be hit, and hit hard."
Indonesia's rupiah fell 2 percent in August to Rp 9,395 against the
dollar, according to data compiled by Bloomberg, making it the third
month of losses, and the worst run in almost two years.
This has aroused BI concern, and support for the rupiah, the central
bank's Senior Deputy Governor Miranda Goeltom said.
BI committed more than $1.3 billion of its reserves to supporting the
rupiah during the recent market turmoil, according to a Standard
Chartered report.
Miranda also said that BI would hold its key rate until the market
stabilized, after cutting the rate 13 times since May 2006.
Meanwhile, on the stock market, Indonesian share prices are likely to
trade stronger in the week ahead, but U.S. market sentiment would
continue to influence the local bourse, Lanang Trihardian from Erdhika
Elit said.
"There's a good possibility that the market will trade stronger, but
any negative sentiment from the US market will easily affect our
market," Lanang told AFP.
Other analysts said that August's inflation data, which the Central
Statistics Agency (BPS) will announce Monday, would also likely affect
market sentiment ahead. BI estimates inflation to be 0.49 percent
month-to-month and 6.2 percent year-on-year.
The Jakarta Stock Exchange Composite Index gained 51,230 points over
last week to finish at 2,194.34.
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