Rupiah strengthens as BI raises interest rates<\/p>\n
JAKARTA (JP): The rupiah rose sharply yesterday to cross 2,900
\nlevel against the U.S. dollar after Bank Indonesia (the central
\nbank) raised one-week to three-month treasury rates, dealers
\nsaid.<\/p>\n
Spot rupiah was traded at over 3,000 level in morning trading.
\nSoon after Bank Indonesia raised treasury rates, the rupiah
\nimmediately soared to 2,845 and closed at 2,850\/2,870.<\/p>\n
\"Overseas players are suddenly selling dollar to make profit,
\nknowing the one-week to three-month rupiah is getting more
\nexpensive,\" one local foreign exchange bank dealer said.<\/p>\n
The central bank raised one-week bilateral Bank Indonesia
\nCertificates (SBIs) to 20 percent from 10.5 percent, two-weeks to
\n22 percent from 11 percent, one-month to 30 percent from 11.625
\nand three-months to 28 percent from 11.5 percent.<\/p>\n
But it kept overnight SBIs at 15.0 percent, two-to-six day at
\n16.0 percent, six-month and one-year at 12.125 percent and 12.75
\npercent respectively.<\/p>\n
\"We expect the new rate increase to cause a more substantial
\ncontraction in the money supply so as to curb an abnormal
\ndepreciation of the rupiah,\" Bank Indonesia's Governor Soedradjad
\nDjiwandono said yesterday.<\/p>\n
Target<\/p>\n
But he said the monetary authorities did not set a specific
\ntarget for the amount of rupiah to be soaked up by the higher
\ntreasury rate.<\/p>\n
\"It depends on the market,\" added Soedradjad after attending a
\nmeeting of the Monetary Board at the finance ministry.<\/p>\n
Other board members -- Finance Minister Mar'ie Muhammad,
\nCoordinating Minister for Economy and Finance Saleh Afiff and
\nMinister\/State Secretary Moerdiono -- also attended the meeting.<\/p>\n
Afiff confirmed yesterday that state companies and banks had
\nbeen asked to place part of their surplus funds in Bank
\nIndonesia's certificates in another effort to soak up liquidity
\nin the market.<\/p>\n
\"This reminds me of a Sumarlin move, which shocked everyone in
\nthe banking industry,\" said Schroder Indonesia's senior analyst
\nJohn Rachmat, referring to the tight money policy introduced by
\nthen Finance Minister J.B. Sumarlin in 1991.<\/p>\n
\"If the central bank continues to pursue this tight policy, it
\ncould easily burn everyone in the market, especially small
\nplayers,\" he said.<\/p>\n
He contended that several small banks now faced serious
\nliquidity problems.<\/p>\n
And those banks could easily become default if the central
\nbank remained absent from the SPBU market, he warned.<\/p>\n
Overnight rupiah on the interbank market reached 160 percent
\nbefore easing to 40 percent at yesterday's close.<\/p>\n
This could trigger bigger problems like those in Thailand,
\nwhere several financial institutions collapsed, he warned.<\/p>\n
\"If that happened in Indonesia, foreign investors would
\ncertainly pull out their investment from this country,\" he
\nwarned.<\/p>\n
He suggested the central bank reenter the SPBU market, but
\nwith higher discount rates.<\/p>\n
\"It's better to reenter the market with higher rates than
\nnever,\" Rachmat said.<\/p>\n
While rupiah was strengthening, share prices on the Jakarta
\nStock Exchange tumbled again yesterday, with the composite index
\ndropping 1.5 percent to close 9.196 points lower at 590.530.<\/p>\n
Stock brokers said state-owned PT Danareksa Securities and PT
\nBahana Securities conducted massive buying to stop the index from
\nfalling again.<\/p>\n
But the two firms were exhausted because the market was still
\ndominated by selling mood, they said.<\/p>\n
Rachmat said the price of most stocks were lower than their
\nbook value given the current market condition.<\/p>\n
He said most people could not foresee the direction of the
\nmarket in the next few months given uncertainties in the currency
\nmarket. (aly\/rid)<\/p>\n
Currency -- Page 11<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/rupiah-strengthens-as-bi-raises-interest-rates-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }