BI intervenes as rupiah falls further
JAKARTA (JP): The rupiah plunged to another new low yesterday dropping to 3,850 against the U.S. dollar at midday before easing in the afternoon due to Bank Indonesia's intervention, currency dealers said.
The dealers said the central bank intervened in the spot market with some US$200 million, which helped prop up the rupiah to close at 3,710/25 against the opening of 3,725/35.
The worsening currency market also perforated trading activities on the Jakarta Stock Exchange with the main price gauge falling by 2.58 points to close at 512.89.
Foreign exchange dealers said even though the central bank's intervention was small, it helped pull back the rupiah from further decline.
"The central bank intervened in the market with a very limited amount of dollars, but it psychologically helped the rupiah recover slightly against the dollar," a local bank dealer said.
However, he said, trading volume remained quite small.
Currency dealers attributed the persistent weakening of the rupiah to the high demand for dollars from local companies to refinance their dollar-denominated debt as well as the weak regional currency markets.
Rino Agung Effendi, an economist at state-owned Danareksa Sekuritas, suggested yesterday that the government set up a consortium consisting of an Indonesian government body and a foreign financial institution to bail out local companies' dollar debts.
"The consortium would buy all offshore obligations of the local companies. This would help the rupiah from a further decline against the dollar," Rino said.
Another possible scheme, he said, was to exchange the offshore dollar debts with shares in local companies.
"The bottom line of this scheme is that the government should intervene in the market to prevent the current short-term monetary problem from turning into long-term problem," Rino said.
Local currency dealers also suggested that the central bank give loans in dollars to local companies to refinance their dollar debts.
"This scheme would be helpful if the central bank could lend dollars to selected local companies to refinance their offshore debts," a dealer at a local bank said.
Economists and analysts in Jakarta said yesterday that these schemes were necessary because the recently launched facility by the central bank to encourage export companies to release their dollar holdings could not help the rupiah from falling.
Rino said exporters would not automatically use the facility because they would rather keep their dollar earnings than release them.
"Why should I release dollars while I know the rupiah will continue to weaken against the American greenback," Rino told The Jakarta Post.
"The demand and supply for the dollar is totally unbalanced as the number of Indonesian companies rushing for the dollar is so huge that offshore operators sell their dollars at higher and higher rates," Rino said.
The worsening foreign exchange market pushed down the Jakarta Stock Exchange composite index to below the 500 level during lunch break to 497.96 before recovering in the afternoon to close at 512.89.
Some 377.9 million shares changed hands on the regular market valued at Rp 405.01 billion (US$109.46 million).
Stock brokers said intervention by the central bank in the money market yesterday provided a positive sentiment to stock market activities which saw the index recover to above the psychological level of 500 points.
"The main key point is that the more uncertain the currency market is and the higher the interest rate is, the more difficult it is for the stock market to rebound," head of sales at ING Baring Securities Darwin Sutanto said. (aly)
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