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The rupiah may weaken to Rp 9,700 per US dollar by the end of the first three months of 2010 as investors buy dollars, in the light of uncertainties on the global economic recovery, Standard Chartered Bank said.

The dollar will bounce back in the first quarter of this year to be followed by a consolidation in
the second quarter, before weakening in the second half this year as the Western economies are predicted to stay weak for several years, the UK-based bank said in a research report.

The rupiah is predicted to gain to Rp 8,900 per dollar by the end of 2010 as the economy expands at 5.5 percent, Callum Henderson, the bank’s global head of foreign currency research, told a forum held by Standard Chartered on Monday.

“There will be a question on valuation, and a question on recovery [in the first quarter this year] ... It will be volatile for the asset market and currencies in general,” he said.

Currencies are traded in the asset market.

The rupiah declined for a second day, its first back-to-back loss in a month, as investors sold riskier assets after reports of losses at the retail banking subsidiary of JPMorgan Chase & Co. and on reports of the deteriorating financial position of the Greek economy, Bloomberg reported.

The rupiah weakened 0.4 percent to 9,230 per dollar as of 3:25 p.m. in Jakarta.

However, it has gained 1.7 percent this year after jumping a total of 16 percent in 2009, and having reached a 17-month high of Rp 9,121 to the US dollar on Jan. 11.

A study by Bank Danamon said the rupiah may strengthen to Rp 9,000 to the dollar in the near term, but then soar to Rp 9,500 by the year’s end due to a combination of rising inflation in Indonesia and in the expectation of global increases in bank interest rates.

Standard Chartered senior economist Fauzi Ichsan predicted Indonesia’s foreign exchange reserves would increase up to US$73 billion from $66.11 billion in December 2009, and that this would help to strengthen the rupiah in terms of its value against the US dollar.

Following the rupiah depreciation in the first quarter of this year, the Jakarta Composite Index will also probably undergo a correction, said Fauzi.

At the closing of trading on Monday the Jakarta Composite Index had dropped 0.17 percent to 2,642.54, as reported by Bloomberg.

Fauzi also said the central bank would probably raise its key policy rate by 100 basis points to 7.5 percent later this year as inflation might accelerate to 5.5 percent later due to surging commodity prices.

“They may force the government to raise subsidized fuel prices and the electricity base-tariff, although not within the first three months,” he said.

Coordinating Economic Minister Hatta Rajasa said the government would spend the Rp 38 trillion ($4,1 billion) budget surplus accumulated from 2009 to stabilize administered prices (for example of fuels, electricity and key commodities) and to boost infrastructure projects.

“Inflation will be maintained at 5 percent although there is the possibility of plus or minus [some degree of variation],” he said.

Finance Minister Sri Mulyani Indrawati said last week inflation might rise as high as 5.5 percent due to surging commodity prices, most notably rises in the price of fuel oil.

Standard Chartered estimated oil might be traded at between $80 and $90 per barrel during this year.

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