Interest rate rise has little impact on ASEAN monies

Interest rate rise has little impact on ASEAN monies

SINGAPORE (Dow Jones): An increase in rupiah interest rates
yesterday had little impact on trading in Southeast Asian
currency markets as regional currencies rose against the U.S.
dollar in line with the yen during Asian hours.

Although the rupiah inched slightly higher against the U.S.
currency, in line with rises in the ringgit, the Singapore dollar
and the baht, traders and analysts dismissed Bank Indonesia's
rate rise as ineffectual.

"It appears that Bank Indonesia is targeting a certain
exchange rate for the rupiah and that it is raising interest
rates to try and force the exchange rate to hit that target,"
said Stephanus Partono, Indonesia analyst at Goldman Sachs in
Singapore.

"But there are more important issues to be addressed before
the exchange rate can recover," he added, "like the private debt
problem and bank restructuring. It doesn't matter how high you
jack up interest rates, the rupiah will not recover while these
problems linger."

In a press conference held late in the Jakarta, Bank Indonesia
announced an across-the-curve increase in interest rates on
Sertifikat Bank Indonesia short-term money market notes, with the
benchmark one month SBI rate rising to 50 percent from 45
percent. An earlier increase four weeks ago raised the one month
rate to 45 percent from 22 percent.

According to Indonesian finance minister Fuad Bawazier, the
interest rate increase was aimed at stabilizing and strengthening
the rupiah. Most market participants, however, ridiculed the
notion that the government could attain its declared exchange
rate target of 6,000 rupiah to the U.S. dollar simply by raising
interest rates.

Even if Bank Indonesia hikes rates to 100 percent, the rupiah
will not rally to 6,000 rupiah," said one economist at a European
bank in Singapore.

Market reaction to the news was muted, with the rupiah
rallying briefly on the announcement, with the dollar dropping to
an intraday low of 7,775 rupiah. The U.S. currency recovered
within the hour, however, before settling to finish Asian trading
at 7,825 rupiah, down from 8,025 rupiah late on Monday.

After the central bank had announced earlier Tuesday that it
was to hold a press conference to address the "weekly publishing
of key monetary data as well as fulfilling the IMF's performance
criteria," an interest rate rise had been widely expected.

With low rates on tomorrow/next U.S. dollar/rupiah swaps
indicating plentiful rupiah liquidity in the offshore market --
tom/next rates were at par immediately before the SBI rate rise,
say traders -- market participants were prepared for the increase.

"In any case most people aren't interested in trading the
rupiah because of the credit concerns. SBI rates simply aren't a
valid tool for manipulating the exchange rate," said the managing
director of foreign exchange at one U.S. bank in Singapore.

With few developments to provide direction to trading, other
regional currencies inched higher against the U.S. dollar in line
with the yen.

Late in the Asian day, the U.S. dollar was trading at 3.7374
ringgit (MYR), down from 3.7925 late the previous day.

Wary of Bank Negara, which on Monday was seen offering to sell
U.S. dollars at 3.80, and lacking immediate reasons to buy U.S.
dollars, traders bought ringgit to exit liquidate outstanding
long positions in U.S. dollars, said market participants.

Overall sentiment towards Malaysia remains negative, however,
with the market only awaiting a trigger, such as a new batch of
corporate insolvencies, to sell the ringgit down once again, say
traders.

The Singapore dollar also rose on Tuesday, with the U.S.
dollar falling back to S$1.5922 in late Asian trading, down from
S$1.6009 late on Monday.

The Thai baht ended higher, too, as market participants bought
the local currency in an attempt to front-run demand for baht
resulting from the forthcoming US$1 billion recapitalization of
Bangkok Bank PCL (H.BBK).

In London, the U.S. dollar fell yesterday against most other
major currencies in early European trading. Gold prices also were
lower.

Dollar rates compared with late Monday included: 1.7924 German
marks, down from 1.8037; 131.48 Japanese yen, down from 132.08;
1.4895 Swiss francs, down from 1.4948; 6.0085 French francs, down
from 6.0457; 2.0184 Dutch guilders, down from 2.0314; 1,772.03
Italian lire, down from 1.783.00, and 1.4292 Canadian dollars, up
from 1.4282.

The British pound was quoted at US$1.6772, down from $1.6791.