Rate rise fear places stocks under pressure

JAKARTA (JP): Trading activities on the Jakarta Stock Exchange (JSX) are likely to remain under pressure this week on market concerns that the central bank might further raise interest rates.

Head of Pentasena Securities research, Mohammad Syahrial, said Saturday that Bank Indonesia might further raise the interest rate because the increase made last week failed to prop up the ailing rupiah.

"I think Bank Indonesia will raise the rate again this week because the previous increase in SBI rates was not high enough to push up the ailing rupiah," he said.

The rupiah closed at 7,950 against the U.S. dollar Friday, slightly higher than its close at 8,150 in the previous week.

Harita Securities' managing director, Christina Lim, shared Syahrial's view, saying that many investors had anticipated a further increase in the interest rates.

She said that the increase of SBI rates would prompt most commercial banks to raise their time deposit rates to a higher level again.

"As a consequence, investors will shift their portfolio investments to time deposits," she said, adding that time deposits offer higher yields than stocks.

Most commercial banks have raised their one-month time deposit interest rates, for example, to as high as 55 percent last week following the increase in Bank Indonesia's promissory notes (SBIs).

Bank Indonesia raised its SBI rates early last week by between three percentage points and five percentage points to as high as 50 percent for a one-month maturity.

"Most investors will be tantalized to put their funds in the money market to benefit from the higher yields in the banking system," said a broker with BZW Niaga Securities.

Analysts and brokers also attributed withering trading activities this week to a heated political and social climate lingering on the country's economic outlook.

They said mounting demonstrations by university students demanding President Soeharto to step down and make rapid political and social changes would bar foreign investors from entering the country's market.

Foreign investors are worried that student demonstrations will go to the streets, causing social and political instability to rise, analysts said.

"If students take to the streets, the country's political risk will certainly increase, prompting investors to persistently move sidelines," an analyst said.

"Foreign investors do not like such instability," the analyst said.

Analysts and brokers also voiced concern over the possible delay in the disbursement of the second US$3 billion tranche to help improve market confidence in the country's economy.

"People are now waiting whether the funds will be disbursed as scheduled," Syahrial said.

The IMF will meet on May 4 to decide on the release of the second tranche.

Four days later, debt-restructuring talks are due to open in Tokyo.

The JSX composite index fell 3.2 percent or 17.42 points to 490.48 last week from 507.90 the previous week.

Daily average turnover was 447.56 million shares last week compared to 428.04 million the previous week.

Daily transaction value was Rp 487.64 billion last week compared to Rp 522.67 billion the previous week.

Most blue chip stocks ended lower last week with state-owned telephone company Telkom falling by Rp 225 to Rp 3,375, cigarettemaker Sampoerna slumped Rp 1,000 to Rp 5,800, while competitor Gudang Garam lost Rp 300 to Rp 10,900. Bank Internasional Indonesia shed Rp 25 to Rp 650 and Bank Negara Indonesia slipped Rp 25 to Rp 525. (aly)