Mar'ie calms investors as shares fall
JAKARTA (JP): Share prices on the Jakarta Stock Exchange fell yesterday by 3.13 percent with the composite index tumbling to 677.939 following heightened concerns over the tighter monetary policy.
But Minister of Finance Mari'e Muhammad, who made a surprise visit to the exchange yesterday in an apparent bid to calm investors, said the decline was only temporary.
"This is simply the natural consequence of the tightening of the monetary policy," Mar'ie told journalists on the trading floor.
Brokers and analysts said the market was hit by accumulated concern over the rising interest rates, new margin trading regulations and payments due on large rights issues.
"But the single reason for the decline was the interest rate," Morgan Grenfell Asia Indonesia's head of sales, Adnan Tan, told The Jakarta Post yesterday.
After falling 1.9 percent Wednesday, the JSX composite index plunged 3.13 percent yesterday, or 21.917 points, to 677.939.
Minister Mar'ie said the two-day consecutive drop in Jakarta share prices was caused mainly by concerns over the steep rise in the interbank interest rate.
Mar'ie admitted monetary authorities were tightening interbank liquidity to stabilize the rupiah rate and restore confidence in the currency.
"But we can adjust it (ease the policy) anytime the condition permits. In other words, this tightening -- if necessary -- will be eased gradually," Mar'ie said.
Following speculative attacks on the rupiah, which sent it to its lowest level of 2,665 against the U.S. dollar on July 21, Bank Indonesia, the central bank, has tried to drain excess liquidity from the banking industry to discourage speculations on the rupiah.
The central bank stayed out of the short-term securities market (SPBU) and gradually increased short-term rates of Bank Indonesia Certificates (SBI).
Bank Indonesia steadily raised the two-to-three-day SBI rate from 7 percent before July 21 to 7.5 percent, then to 10 percent, 13 percent and finally 14 percent on July 24. The central bank had maintained that level until yesterday.
"The tighter monetary stance is necessary to restore the market's confidence in the rupiah and stabilize the currency," Mar'ie said.
"As a result, the rupiah has been firmer and is now stabilizing. This is our main priority this time," Mar'ie said.
Dealers said the rupiah was stabilizing against the U.S. dollar. Spot rupiah closed at 2,588/2,598 yesterday, compared to 2,586/2,591 at the opening.
But Mar'ie said the policy had prompted several banks to increase their deposit rates to attract more funds.
"As the interest rates are rising, the share prices are declining," he said, adding that was only a temporary phenomenon.
"But I assure you, there is nothing to worry about. This is not something unusual," Mar'ie said.
The previous steepest plunge during the course of one day, 33.54 points, took place on July 29 last year in the aftermath of the July 27 riots in Jakarta.
Total trading turnover yesterday was 321.22 million shares valued at Rp 576.90 billion (US$230.76).
Decliners led gainers by 13 to 165 with 21 stocks remaining unchanged.
Dealers said that most investors cut their holdings to meet the Capital Market Supervisory Agency's requirement in order to obtain margin license from the agency.
Pentasena Arthasentosa Securities' analyst Edwin Syharuzad said although margin investors had to provide cash for at least 50 percent of the value of shares to be purchased, "it is not the main reason for the fall".
"The tighter monetary policy is hitting the share prices," Edwin said.
And most importantly, he added, some foreign fund managers had pulled back from this market for fear of continuing regional currency turbulence.
But analysts and bankers saw the tighter monetary policy as a temporary measure to curb speculative assaults on the rupiah.
"I think businesspeople should not be too worried about the tightened monetary stance, especially because the rupiah rate has now been stabilizing," economist Sjahrir said.
Sjahrir predicted that as soon as the rupiah stabilized and other currencies in the region were off the speculative heat, monetary authorities would ease the monetary policy.
But he warned the monetary authorities against pursuing too ambitious objectives of simultaneously controlling interest rates, the rupiah rate and inflation.
"They should zero in on one particular objective at a time," Sjahrir cautioned.
State-owned Bank Tabungan Negara president Tito Sutalaksana concurred that the tighter monetary stance was only temporary and aimed mainly at coping with the currency speculation.
"Obviously this policy will increase credit interest rates but this won't last long. As soon as the rupiah achieves its equilibrium rate, I am sure the central bank will ease the lid," Tito said. (rid/alo/vin)
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