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Wavering Rupiah Falls With Euro Zone’s Credit Crisis
January 16, 2012

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The rupiah has weakened toward a seven-week low on concern Europe’s credit crisis will slow growth in Southeast Asia’s biggest economy.

It has lost 0.3 percent since Thursday, when Bank Indonesia left its benchmark reference rate unchanged at 6 percent following a monetary-policy review.

The Bloomberg-JPMorgan Asia Dollar Index retreated for a second straight day on Monday after Standard & Poor’s cut France’s top credit rating and downgraded eight other euro zone nations last week.

“There is more risk aversion after the euro zone downgrades,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking in Singapore.

The rupiah slid 1.1 percent to 9,185 per dollar as of 3:15 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It touched 9,218 earlier and reached 9,233 on Jan. 9, which was the weakest since Nov. 29.

The yield on the government’s 7 percent bonds due May 2022 fell five basis points, or 0.05 percentage point, from the end of last week to 6.13 percent on Monday, according to midday prices by the Inter-Dealer Market Association.

Bank Indonesia’s governor, Darmin Nasution, said on Monday that the central bank was ready to intervene in the foreign exchange market to safeguard the currency.

“We will always be in the market,” he said. “We will not let the rupiah depreciate too low.”

A strong rupiah would be good for Indonesian importers but at the same time would hurt export competitiveness.

Commenting on the sovereign debt crisis in the euro zone, Darmin said that as long as there was no solution there, the rupiah would continue to fluctuate against the dollar.

“This will happen across the world, especially in emerging markets, because no settlement of the European crisis has emerged that is believed to be able to settle the problem,” he said.

Darmin said the central bank could not set a trading level for the rupiah against the dollar. “We cannot give a range or figures because fluctuations can continue to happen. We will do what we can so the fluctuations aren’t too sharp,” he said.

Currency and foreign exchange dealers in Jakarta said unresolved concerns in the euro zone would continue to cast a shadow on the currency market in Jakarta.

“News from the euro zone is giving a negative sentiment for our currency market,’’ said Abidin, an analyst at Millenium Danatama Sekuritas.

He noted that overseas investors would continue to place their assets in so-called safe havens including the US dollar.

Bloomberg, Antara