Satria Sambijantoro, Jakarta – The rupiah extended its losses on Thursday after Bank Indonesia (BI) moderated its market intervention, with the currency declining for the tenth consecutive day, the longest losing streak in almost a decade.

The rupiah dropped 0.2 percent to 10,060 per dollar, prices from local banks compiled by Bloomberg show. The 10-day decline was the longest losing streak for the rupiah since January 2004.

The rupiah rate of more than 10,000 to the dollar reflected Indonesia's macroeconomic fundamentals, BI Governor Agus Martowardojo said this week, adding that the central bank would keep supplying dollars to the market to stabilize the currency when necessary.

The recent weakening cycle of the rupiah appeared to be "by design" as BI had intervened too much in the past, a strategy that had eroded its foreign exchange (forex) reserves, according to Manulife Asset Management Indonesia director of investment Alvin Pattisahusiwa.

"The rupiah is now heading into its fair consensus level of around 10,500 to 11,000 per dollar," Alvin said. By the time the rupiah hit that range, it would stabilize with a small possibility of depreciating further, he predicted.

"We think that it [the rupiah range of 10,500 to 11,000 per dollar] will be an attractive entry level for foreigners to buy Indonesian assets again. At the moment, investors are still in wait-and-see mode before entering the market, as they fear that further rupiah weakness could erode the value of their investments," he said.

The rupiah's losing streak was contrary to its emerging-market peers. Other currencies, notably the Brazilian real and Mexican peso, rallied by more than 1 percent against the dollar after US central bank Governor Ben Bernanke said this week that the existing monetary stimulus, which has weakened the greenback, "could be maintained for longer".

The persistent rupiah weakness could trigger a psychological depreciation cycle in the market, which could in turn exert more pressure on the currency, warned Mirza Baig, the head of Asian foreign exchange strategy with BNP Paribas in Singapore.

"The more the currency depreciates, the more the market expects it to depreciate. And the more that happens, the larger premium it demands for holding local currency bonds," Baig wrote in a research note released on Thursday.

The only way for BI to break this vicious circle was through delivering another bold and decisive rate hike, something that the central bank "seems unwilling to do" because it already hiked its key interest rate by 75 basis points to 6.5 percent within a two-month timeframe, he said.

"In fact, it was quite a letdown to hear a BI deputy governor say the 75 basis points [rate hike] was enough," Baig noted, adding the pressure on the rupiah would be greater ahead if there was no further rate hike delivered.

In its attempt to boost dollar liquidity in the local market and stabilize the rupiah, BI held its historic first foreign currency swap auction on Thursday, successfully reaping $600 million from selling forex swaps with tenors of one and six months.

The auction was oversubscribed with incoming bids topping $1.24 billion, which is "evidence of growing market confidence in liquidity conditions in the domestic market, in particular foreign exchange liquidity", BI Deputy Governor Perry Warjiyo said in a statement.

In a forex swap auction, local banks or exporters can lodge their dollars with BI to be retrieved in the agreed timeframe, so that they can hedge against the risks stemming from volatility in the rupiah exchange rate.