Rupiah besieged
Rupiah besieged
Yesterday, it was the rupiah which came under strong
speculative assaults, driving it to a historic low of Rp 2,680 to
the U.S dollar in afternoon trading, on the back of analysts'
comments that the central bank might abolish or widen the
currency's trading band.
On the previous day, the Singapore dollar dropped to a 37-
month low of S$1.50. This wholly unexpected development was
blamed by dealers on remarks by a monetary authority official
that the Singapore dollar's level was appropriate with prevailing
market trends. Earlier on Monday, similar attacks hit the
Malaysian ringgit, pushing it to a 42-month low in a panic
reaction to Malaysian Prime Minister Mahathir Mohamad's statement
that he was happy with the ringgit's level.
There is actually nothing unusual or strange in those kind of
remarks, which have been blamed by dealers and analysts for the
fiercer assaults on the currencies. Such comments might have
simply been discarded by the mass media as "stock statements".
That should have been the case if the financial market condition
was normal. But the Southeast Asian foreign exchange market has
been in turmoil since early last month, depressed by the fallout
of the de facto devaluation of the Thai baht. The market forces
have largely been decoupled from underlying economic
fundamentals.
These developments once again strengthen the message that in
the current era of a globalized financial market a currency
crisis in one country could set off a regional contagion through
irrational expectations irrespective of the condition of economic
fundamentals. Such a contagion breeds not on key economic
indicators but largely on perceptions or market expectations
which are in turn strongly influenced by information.
No wonder, in such an environment impregnated with irrational
worries, officials in key positions should be extra careful about
what they say or what they refuse to state. Seemingly innocent
remarks could easily be misinterpreted by nervous traders. A
refusal to answer reporters' questions could fire up the rumor
mill because that could be taken as a deliberate act to hide
something. Even reports on a news conference at the information
ministry yesterday further worsened jitters about the rupiah as
it was being held amid massive attacks on the currency.
Likewise, the manners in which the mass media treat stories on
the events around the currency turmoil could mitigate or
vindicate the irrational expectations of market developments. Set
against this, we fully understand and support the appeal by
Minister of Information Hartono yesterday that the mass media
help calm down market jitters. True, until the dust of the
currency turmoil settles down, the most influential factor in the
currency market are public expectations which in turn are based
on what they know or learn from mass media or hearsay.
However, restraint on the part of the mass media, though quite
necessary, is not enough. Market analysts as the opinion leader
for market players should also refrain from making comments that
could strengthen irrational expectations.
Yesterday, it was the rupiah which came under strong
speculative assaults, driving it to a historic low of Rp 2,680 to
the U.S dollar in afternoon trading, on the back of analysts'
comments that the central bank might abolish or widen the
currency's trading band.
On the previous day, the Singapore dollar dropped to a 37-
month low of S$1.50. This wholly unexpected development was
blamed by dealers on remarks by a monetary authority official
that the Singapore dollar's level was appropriate with prevailing
market trends. Earlier on Monday, similar attacks hit the
Malaysian ringgit, pushing it to a 42-month low in a panic
reaction to Malaysian Prime Minister Mahathir Mohamad's statement
that he was happy with the ringgit's level.
There is actually nothing unusual or strange in those kind of
remarks, which have been blamed by dealers and analysts for the
fiercer assaults on the currencies. Such comments might have
simply been discarded by the mass media as "stock statements".
That should have been the case if the financial market condition
was normal. But the Southeast Asian foreign exchange market has
been in turmoil since early last month, depressed by the fallout
of the de facto devaluation of the Thai baht. The market forces
have largely been decoupled from underlying economic
fundamentals.
These developments once again strengthen the message that in
the current era of a globalized financial market a currency
crisis in one country could set off a regional contagion through
irrational expectations irrespective of the condition of economic
fundamentals. Such a contagion breeds not on key economic
indicators but largely on perceptions or market expectations
which are in turn strongly influenced by information.
No wonder, in such an environment impregnated with irrational
worries, officials in key positions should be extra careful about
what they say or what they refuse to state. Seemingly innocent
remarks could easily be misinterpreted by nervous traders. A
refusal to answer reporters' questions could fire up the rumor
mill because that could be taken as a deliberate act to hide
something. Even reports on a news conference at the information
ministry yesterday further worsened jitters about the rupiah as
it was being held amid massive attacks on the currency.
Likewise, the manners in which the mass media treat stories on
the events around the currency turmoil could mitigate or
vindicate the irrational expectations of market developments. Set
against this, we fully understand and support the appeal by
Minister of Information Hartono yesterday that the mass media
help calm down market jitters. True, until the dust of the
currency turmoil settles down, the most influential factor in the
currency market are public expectations which in turn are based
on what they know or learn from mass media or hearsay.
However, restraint on the part of the mass media, though quite
necessary, is not enough. Market analysts as the opinion leader
for market players should also refrain from making comments that
could strengthen irrational expectations.