BI sells $1b to stabilize the rupiah

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono said yesterday that the central bank had sold US$1 billion on the forward market to stabilize the rupiah.

That amount was much less than the Thai and Philippine central banks sold to defend their currencies, he said.

"This smaller amount (for intervention) is because we had taken preemptive action before the sharp depreciation of the rupiah (against the U.S. dollar)," Soedradjad said after opening a seminar on Islamic mutual funds.

Before intervening, the central bank widened its intervention band from 8 percent to 12 percent to discourage speculation, he said.

He said the bank's intervention had helped calm the jittery market and stabilized the rupiah, which came under strong speculative attack on July 21.

"You can see from current developments that the rupiah is recovering and its depreciation is no longer as steep as that on July 21," Soedradjad said.

Dealers said yesterday the rupiah was recovering against the U.S. dollar. Spot rupiah closed at 2,570/2,575 yesterday, higher than the previous day's close of 2,575/2,580.

Rupiah plunged to its lowest level -- 2,665 -- on July 21, when the central bank started intervening in the market by selling dollars on the forward market, with different tenors ranging from one month to six months and different rates.

Soedradjad said the central bank sold dollars on the forward market, not on the spot market, so that it would not endanger the country's foreign exchange reserves.

Bank Indonesia's managing director Paul Soetopo Tjokronegoro said that by selling dollars on the forward market, the central bank was not required to settle dollars right after trading but on the due date only.

"And from our past experience in market intervention, buyers of our forward dollars often sold back the dollars to us on the due date. So, our reserves would not be reduced by such intervention," Paul said.

He projected the rupiah would remain stable at between 2,555 and 2,610 against the dollar in the short term.

A dealer with a local foreign exchange bank said the rupiah could have strengthened to below 2,550 yesterday if local players had not bought dollars.

"I noticed when Singapore started selling dollars, local investors bought them all," he said, adding that the rupiah was, however, on the way to recovery.

Strong local appetite for dollars was attributed to expensive overnight dollar deposit rates, traded at 13.0/14.0 percent yesterday.

The central bank maintained its recent policy of keeping short-term money relatively expensive and remained absent from the short-term securities market. (rid)