Central bank to tighten forex trading, effective July 14

Central bank to tighten forex trading, effective July 14

Dow Jones, Jakarta

Bank Indonesia, the central bank, said it will tighten foreign
exchange transaction rules starting July 14.

The new rules will cut foreign exchange derivative
transactions with foreign counterparts against the rupiah to a
maximum of US$1 million from a previous total of $3 million, the
central bank said in a statement posted on its Web site late
Wednesday.

The statement said dollar purchases in outright forward
transactions and swaps are also limited to a $1 million total.
These types of transactions previously weren't subject to any
cap.

The central bank has also imposed a three-month minimum
investment hedging period on foreign-exchange transactions.
Previously, such deals had no minimum periods.

Bank Indonesia officials weren't immediately available to
comment on the rule changes.

The new regulations are likely part of the central bank's
ongoing effort to support the rupiah and stabilize the currency
in the foreign-exchange market.

Such efforts have gathered pace in recent months as part of a
bid to offset a slide in the rupiah against the U.S. dollar.

The slide culminated in a three-year low of Rp 9805 to the
dollar at the end of April, linked to massive dollar buying by
the state oil firm Pertamina. The company's dollar demands have
surged in recent months due to record-high oil prices.

Accelerating inflation has also put pressure on the rupiah.
Indonesia's consumer price index rose at a three-year record pace
of 8.81 percent on year in March, due to a 29 percent average
hike in fuel prices after the government eliminated budget-
crippling fuel subsidies.

The bank's move to tighten foreign-exchange transactions is
welcomed by some as a way of deterring speculation. But there are
concerns that potentially thinner trading and lower volumes could
be the result.

This could make the rupiah more vulnerable to genuine dollar-
purchases by Indonesia-based companies.

One Jakarta-based currency trader said the new rules will
likely spark a flurry of position-squaring in the period up to
the introduction of the regulations on July 14.

"There's going to be some volatility, as people tend to square
their positions as they digest what the new regulations mean,"
the trader said.