Rupiah breaches 8,500 level against dollar in panic selling

JAKARTA (JP): The rupiah continued falling on Friday, breaking through the 8,500 mark against the US dollar as investors remained concerned over the future of the country's economy and the prospect of a hike in U.S. interest rates.

The currency, which opened at around Rp 8,400 against the dollar, plunged after the lunch break to Rp 8,775, its lowest level since late September last year, amid panic selling.

The Indonesian currency managed to recover in late trading to close at Rp 8,380 due to Bank Indonesia's intervention, forex dealers said.

The central bank's intervention reversed the market trend and forced investors to change their position from buying (for US dollars) to profit-taking, the dealers said.

In addition to the central bank's intervention, the change in the direction of the rupiah before the close of trading was also prompted by President Abdurrahman Wahid's statement about a plan to cope with the slide.

The President blamed the rupiah's free fall on reports of a massive student rally later in the afternoon to mark the second anniversary of the shooting of four students at Trisakti University, an event which led to the fall of former president Soeharto.

Abdurrahman, more popularly called Gus Dur, said he would make an "all out" effort to curb the rupiah next week if the currency continued weakening.

"Wait until the next three days. If the rupiah continues falling, then we will do something to stop its fall," he told journalists following Friday prayers. "The government is not stupid, we will wait until May 15 (Monday). If the rupiah remains weak, then we have a method to overcome it," Gus Dur said.

Analysts said uncertainty of the direction of the country's economic policy and an anticipation of a further increase in U.S. interest rates next week remained the major factors behind the rupiah's fall. "But the fall in the last three days was too much," one of them said.

The analysts said the rupiah, which had been undervalued against the American greenback since it passed the Rp 7,500 level a few weeks ago, would not have fallen to below Rp 8,000 if Gus Dur and his economic team had restrained from making unnecessary statements.

"I think from now on government (ministers) should be more disciplined and stop making unnecessary statements," Pardi Kardi, a foreign exchange dealer at a local bank, said.

The rupiah's fall started on Thursday after Coordinating Minister for Economy and Trade Kwik Kian Gie made a negative statement about the investment climate in Indonesia.

But forex dealers said Friday's fall in the rupiah was more due to market sentiments rather than economic fundamentals.

"The rupiah's free fall today is more due to the market's reaction to the friction within the Cabinet rather than due to the economy," other analyst said. "News about uncertainty in investment and security are nothing new for us and have almost become a part of our lives ... so I don't think these kind of stories are very sensitive these days," he said.

The rupiah would not have breached the Rp 8,500 level if Bank Indonesia had been sensitive enough to monitor the market, the analysts said. "The central bank had the momentum to revise the rupiah's direction before the lunch break when the panic selling of rupiah was slowing down but it did not do it," he said.

Bank Indonesia Governor Sjahril Sabirin's statement made earlier in the afternoon that the central bank would only intervene if the move would be effective was also counterproductive because it triggered more buying rather than reversing the rupiah's movement, the analyst said.

"We will intervene if we think it will be effective," he said about possible central bank action to halt the fall of the Indonesian currency.

Sjahril's remark indicated the lack of the central bank's seriousness in dealing with the falling rupiah, the analyst added. (udi/prb/hen)