Rupiah down to fresh 14-month low as central bank intervenes
Rupiah down to fresh 14-month low as central bank intervenes
Dadan Wijaksana, Jakarta
As the central bank moved to tighten the rules on foreign
exchange transactions to minimize speculation on the rupiah, the
local unit slumped on Friday to a fresh 14-month low on the
greenback's continued strength.
The local currency closed at 9,040 to the dollar, down from
9,010 from the previous closing, with dealers attributing the
decline to the greenback's continued strong showing over other
benchmark currencies, notably the yen.
"The yen's weak footing is dragging down other regional
currencies, including the rupiah," said a dealer with a state-
owned bank.
Friday's closing was the lowest since March last year.
The rupiah's recent shaky showing has been exacerbated by
divestment in the Jakarta stock market as expectations of an
interest rate rise in the U.S. forces investors to shift
investments to dollar-dominated assets.
On Friday, the stock index ended at 722.71 points, 2.2 percent
lower than the day before.
Bank Indonesia however, dismissed concerns the rupiah's slump
would be long-term, saying the unit could bounce back to a level
of 8,700 within three months, given the country's relatively
sound economic fundamentals.
Bank deputy governor Aslim Tadjudin said the slide was mostly
because of external factors. However, Aslim said the central bank
was doing its utmost to limit speculation on the rupiah as
speculators were also to blame for its decline.
Among other measures, the central bank was reviewing a ruling
setting maximum foreign exchange dealings without underlying
transactions at 20 percent of trading banks' equity capital, he
said.
The rate is set out in the central bank ruling on a bank's net
open position (NOP), which regulates to what extent a bank can go
short or long on foreign currencies against the rupiah.
"The new rate will probably no longer be equal for all banks,
depending, in part, on how actively a bank trades in foreign
exchange," he said.
Aslim said the new ruling would not only apply to foreign
banks as had been expected. The central bank had earlier issued
four foreign banks with warning letters over their alleged
speculative transactions.
Meanwhile, on the stock market, negative sentiment also hurt
the local index in line with falls in regional markets.
A weak rupiah and a stronger dollar are likely to hurt big
companies here, many of which remain highly indebted to foreign
creditors with most of the debts in dollars.
The debts are a product of the late 1990s financial crisis,
which saw the rupiah depreciating by around four times its value.
Friday's trading saw volumes at 1.5 billion shares valued at
Rp 889 billion, against 1.48 billion shares at Rp 851 billion on
Thursday.