Local firms can still enter forward forex
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono reiterated yesterday that Indonesian residents remain free to deal in forward foreign exchange transactions.
"The restrictions on forward forex deals imposed since Friday evening are only effective for nonresidents," Soedradjad said.
Speaking to journalists after attending a Monetary Council meeting, Soedradjad said the limitation for nonresidents, including foreigners, foreign banks and foreign firms, should curb speculative U.S. dollar buying.
"The main purpose of (the limitation) is to reduce the use of rupiah to speculate on the dollar. But they (nonresidents) could still enter unlimited transactions in the spot market," Soedradjad said.
In a bid to confine speculative dollar buying, Bank Indonesia, the central bank, announced Sunday it had limited forward foreign exchange selling by domestic banks to nonresident clients at US$5 million per client and per bank's daily outstanding position.
Forward exchange transactions are purchases or sales of foreign currencies at an exchange rate established at the time of the deal but with payment and delivery at a future date.
Bank Indonesia's managing director, Paul Soetopo Tjokronegoro, said yesterday the move was aimed at reducing the impact of a rapid internationalization of the rupiah and supporting the government's effort to maintain an orderly trend in dollar-rupiah rates.
The limitation on forward foreign exchange trading did not help the rupiah in the spot market but helped bring down swap rates, foreign exchange dealers said yesterday.
Spot rupiah, which opened at 2,860/2,890 against the U.S. dollar, strengthened in morning trading to 2,850 but weakened in the afternoon and closed at 2,950/2,960.
The overall volume was extremely thin, dealers said.
One local bank chief dealer said rupiah weakened in the spot market because of natural strong domestic demand from corporates and banks with the improved liquidity condition.
The market was injected with fresh liquidity from the maturing Bank Indonesia Certificates (SBI) totaling Rp 914 billion (US$315 million) yesterday.
Dealers said the central bank's latest move effectively curbed the sources of funds for foreign players to buy dollars.
They said the move was anticipated, but ironically the market was so prepared that major offshore parties were heavily long on the forward side and failed to establish a forward offshore market.
Swap rates fell across the board as offshore parties were long on the forward side, relying solely on Jakarta to absorb their offers and push rates down sharply.
One-month swap fell to 60/65 from 115/120 last Friday, two to 100/115 from 190/210, three to 190/200 from 240/290 and six to 260/280 from 340/350 points.
The chief dealer said the move was likely aimed at allowing the central bank to lower interest rates and resume liquidity supply to a market suffering from rupiah scarcity and high interest rates.
"The current tight liquidity policy has affected everyone, not only those in the banking industry and stock markets but also those in the real sector," he said.
Share prices on the Jakarta Stock Exchange (JSX) continued to weaken, dropping by 1.6 percent, with the composite index falling 7.993 points to close at 485.969.
Securities analysts said the situation had not changed much since last week. The rates remained high and rupiah liquidity was still tight. This forced people to dump their portfolio investment.
But Pentasena Arthasentosa's stock analyst Edwin Syahruzad said that at the present level, the downside potential for the market was becoming limited as the average price earning ratio had declined 10.6 times.
"Every downward movement in the JSX should be considered a buying opportunity. More aggressive play on large cap stocks with excessive cash position is advised," Edwin said. (rid)
Currency -- Page 11