Rupiah and stock markets recover
JAKARTA (JP): The rupiah strengthened further yesterday rising by 100 points against the U.S. dollar while the stock market gained ground to break a six-day losing streak.
Dealers said spot rupiah, which opened at 2,845/2,855 against the American greenback, dropped to 2,865/2,875 at midday but the currency strengthened in the afternoon to close at 2,765/2,775.
They said foreign players still initiated dollar selling yesterday and invested in short-term rupiah, which now offered higher yield.
"Today is good for rupiah, but we must keep vigilant as they invest in short-term rupiah. They can dump rupiah any time the rates fall," a local bank foreign exchange chief dealer said.
The rupiah has been strengthening since the central bank's shock increase of interest rates Tuesday hauling it off a historic low of 3,045.
The central bank raised one-week bilateral Bank Indonesia Certificates (SBI) to 20 percent from 10.5 percent, two to 22 percent from 11 percent, one-month to 30 percent from 11.625 percent and 3 to 28 percent from 11.5 percent.
The hikes have made it more attractive for investors to park funds in rupiah, while discouraging speculators from borrowing.
Parveen Gandhi, an executive at publicly listed Bank Bira, said the government had "shot the target correctly".
"We believe the government is on the way to achieving its objective in stabilizing the rupiah," he said.
The Jakarta Stock Exchange also performed well yesterday, with the composite index increasing 0.45 percent to close at 593.17 points -- the first rise since Aug. 12.
Stockbrokers ascribed the increase to a small measure of confidence because of gains in the rupiah, but cautioned that the sentiment was still overriding.
"The main factor behind the increase is the stability of the rupiah in the money market," said Digby Falkiner, head of Morgan Grenfell Indonesia's research division.
Many investors reentered the market yesterday for blue chip stocks which had been oversold, Falkiner said.
Coordinating Minister for Economy and Finance Saleh Afiff said the government would continue to maintain the current tight money policy until the rupiah stabilized.
He said the government was still urging state enterprises and their affiliates, including banks, insurance firms, pension funds and foundations, to place their excess liquidity and investment funds in SBIs.
Since Friday, state firms and their affiliates have withdrawn over Rp 2 trillion from the banking system and invested them in SBIs.
Bank Indonesia appealed for calm yesterday amidst rumors that some banks had their fingers burnt in foreign exchange deals and during clearing process.
"Don't be influenced by false rumors," Managing Director Paul Soetopo said.
"The government will maintain the stability of the banking system as an institution of trust. The public are expected to support the government efforts," he said.
He said given Indonesia's strong economic indicators, "we're confident that we can overcome the challenges facing us."
Banking analyst Laksamana Sukardi warned that the government's all out effort to overcome the currency crisis by soaking rupiah from the market would create a bank liquidity crisis.
Commercial banks faced liquidity problems after the central bank drained excess liquidity from the banking sector, he said.
He said banks could not get rupiah easily from either interbank, as the rates were already irrationally high, or from short-term money market securities (SBPUs) as the central bank still stayed out of the market.
"Most of them lend long, borrow short. So, when the liquidity is tightened they would get in trouble for matching their portfolio," he said.
Laksamana criticized the central bank's move as counterproductive as this victimized the banking industry and the people as a whole.
"In fact by doing this (raising SBI rates to cure the currency crises), it sends the second wave of jitters. Laymen and small firms, which previously did not know about the crisis, are now fully aware of this," Laksamana said.
Laksamana said the central bank would soon ease rupiah liquidity to help local banks breathe. Otherwise, people will rush banks to withdraw their deposits.
"If the current bank liquidity crisis continues just for another week, I'm afraid it will lead to another crisis, that is bank run and corporate bankruptcy," he said.
Rumors spread yesterday that depositors rushed three local banks, including the country's second largest private Bank Danamon, to withdraw their deposits.
But Christiana M. Damanik from Bank Danamon said the bank did not experience any rush and called the rumors baseless.
"All transactions with our clients run normally, with a slight increase in foreign exchange deals as there is a rise in the number of customers wanting to convert their rupiah deposits to Primadollar or cash them in dollars," Christiana said. (aly/icn/rid)
SE Asia -- Page 11
Tourists -- Page 12