Rupiah Retreats From Near Three-Year High on Intervention Risk

Indonesia’s rupiah retreated from near its highest level in three years on concern policy makers will intervene to limit exchange-rate volatility.

Bank Indonesia Deputy Governor Muliaman Hadad said Oct. 8 that the central bank monitors the rupiah’s development “very closely,” but had no plans to follow Brazil in boosting taxes for foreign investors. The currency has advanced 5.2 percent this year, after climbing 16 percent in 2009.

“BI has been supporting the dollar in the market,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “At any point as the rupiah weakens slightly, people will push for it to get stronger. The market is just going to continue to test the central bank’s resolve” in keeping the rupiah at between 8,920 and 8,925, he said.

The rupiah fell 0.2 percent to 8,928 per dollar as of 9:27 a.m. in Jakarta, according to data compiled by Bloomberg. It reached 8,900 on Sept. 30, the strongest level since June 2007.

Central banks intervene in currency markets by arranging purchases or sales of foreign exchange.
Overseas investors have poured money into the nation’s equities and bonds to benefit from growth in Southeast Asia’s largest economy. Bank Indonesia said on Oct. 5 it expects gross domestic product to increase 6 percent to 6.3 percent in 2010, and between 6 percent and 6.5 percent next year.

Funds based abroad have bought $2.4 billion more Indonesian stocks that they sold this year, exchange data show. Foreign holdings of local-currency government bonds increased 79.3 trillion rupiah ($8.9 billion) this year to 187.3 trillion rupiah as of Oct. 12, according to figures from the finance ministry.