Rate hike fails to stop rupiah's fall
JAKARTA (JP): The rupiah hit a 21-month low of Rp 9,500 to the dollar on Wednesday due to a combination of external factors and ongoing concern over domestic political uncertainty.
The fall occurred despite another rise in the central bank's benchmark interest rate to over 13 percent.
The rupiah plunged to Rp 9,500 per U.S. dollar in the afternoon, but finally closed at Rp 9,405 in late trading, compared to Rp 9,315 on Tuesday. The last time the local unit hit the Rp 9,500 level was in October 1998.
The currency market shrugged off the 45 basis point increase in the interest rate of Bank Indonesia's one-month promissory notes (SBI) to 13.11 percent on Wednesday.
The central bank also increased the interest rate on the three-month SBI notes to 13.04 percent.
An analyst at a state financial institution said the dollar gained on most regional currencies following an earlier statement from U.S. Federal Reserve chairman Alan Greenspan that he saw no signs of a U.S. slowdown in productivity growth.
"This means an improved outlook for the U.S. economy and raises speculation of a further increase in U.S. rates," he said.
He added that news reports that Thailand's central bank would not intervene to shore up the baht had contributed to stronger pressure on most Asian currencies.
The analyst said that on the domestic factor, the currency market remained jittery about Indonesia's political condition ahead of August's General Session of the People's Consultative Assembly (MPR).
But he said that the recent meeting of President Abdurrahman Wahid with MPR Speaker Amien Rais and House of Representatives Speaker Akbar Tandjung did help improve confidence on domestic political developments.
He also pointed to rumors that the President was planning a meeting with the two senior politicians, including Vice President Megawati Soekarnoputri, to discuss concrete ways to resolve the country's woes on Wednesday night.
"But overall, investors are still concerned about the political condition, particularly following the news that the President himself would attend the House's interpellation session," he said.
The interpellation session, scheduled for July 20, was demanded by legislators to seek explanation from the President over April's dismissal of Laksamana Sukardi and Jusuf Kalla from the Cabinet.
Other analysts said that Tuesday's pessimistic comments by Sri Mulyani Indrawati, secretary of the National Economic Council (DEN), that the government would likely miss again its deadline in implementing key reform programs promised to the IMF added to the negative market sentiment on the rupiah.
Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie's reiteration on Wednesday that he was optimistic that the government could meet the deadline failed to inspire the rupiah.
Meanwhile, Dow Jones newswires quoted dealers as saying that the Singapore dollar strengthened in late trading but remained below S$1.7400 after tracking the Indonesian rupiah.
In late trading, the U.S. currency was at S$1.7413, down from S$1.7433 late on Tuesday.
After sinking below 40 baht against the dollar on Tuesday, the Thai baht remained depressed after the Thai central bank governor's announcement of nonintervention.
The dollar was at 40.085 baht late on Wednesday, up slightly from 40.045 baht the previous day.
The Philippine peso rebounded slightly, thanks to dollar profit-taking by offshore players.
The dollar closed at 44.640 peso on Wednesday in the Philippine Dealing System, down from Tuesday's close at 44.820 peso. (rei)