Rupiah extends gains on currency peg news

Rupiah extends gains on currency peg news

JAKARTA (JP): The rupiah extended gains against the U.S.
dollar for a second consecutive day yesterday on the confirmation
that the government will fix the rupiah exchange rate under a
currency board arrangement, currency dealers said.

Currency dealers said the rupiah closed firmer at 7,200/7,300
against the U.S. dollar yesterday, up 62 percent from its lowest
level of 16,800 early last month.

Dealers said the currency market shrugged off reports of
demonstrations in the capital city demanding the government lower
prices for basic essentials.

"I think offshore operators have probably started to take
profits on their long rupiah positions now. They are afraid that
the rupiah might soon firm up to close near the 6,000 level
soon," a chief dealer with a local private bank said.

"Several Singapore operators were seen selling large amounts
of dollars for rupiah yesterday," the dealer said.

Currency dealers said the rupiah was traded in a range between
its highest level of 7,200 and its lowest level of 7,600 before
ending at 7,200/7,300 yesterday.

"I sense a market fear that the rupiah might soon be pegged at
6,000 against the American dollar," the dealer said.

But currency dealers said that although there were large
amounts of dollars being sold by offshore operators, it did not
mean that market confidence had recovered.

"I'm afraid some overseas operators, such as those from
Singapore, might enter the market to drag down the rupiah again
later at a fixed rate," the dealer said.

The dealer, therefore, suggested that the government restrict
the amount of dollar buying in the coming days and record the
purpose of dollar buying to prevent the rupiah from being dragged
down by offshore players.

"Without such controls, the rupiah might decline again
on massive dollar buying by overseas operators," the dealer said.

Dealers said currency market players shrugged off news of a
protest staged by hundreds of people in South Jakarta yesterday
demanding the government lower the prices of basic essentials.

Asian currencies

Other Asian currencies shaved early gains yesterday as traders
cautiously booked profits on recent sharp rises driven by
Indonesia's move towards a currency board system to stabilize its
rupiah, Reuters reported.

In Singapore, the rupiah remained stuck below the 7,000 per
dollar level yesterday and dealers said it was unlikely to
strengthen much beyond 6,500 amid persistent skepticism about the
suitability of the fixed exchange rate plan for Indonesia.

Elsewhere, the Malaysian ringgit slithered back through the
3.50 level against the dollar after surging towards 3.40 on stop-
loss dollar sales in thin, early trade.

Dealers said the dollar looked well bid by Kuala Lumpur
companies and U.S. funds and investment houses below the 3.40
ringgit level but was likely to face a barrier at 3.60 for now.

The Singapore dollar reached a high of 1.61 to the U.S. dollar
before slipping back through 1.63 in late trade.

Dealers said U.S. dollar buying by local banks near the
domestic dollar's highs had sparked speculation of intervention
by the de facto central bank.

"But I think their operation would have been minimal, just to
stabilize the market," one currency analyst said.

The Thai baht came off its highs near the 41.00 per dollar
level, but remained above 45.00 to the dollar in thin offshore
trade with Thai markets closed for a holiday.

Dealers said the baht also gained from reports that Japanese
financial institutions had agreed to roll over the bulk of their
loans to Thailand's private sector.

A Thai newspaper said the Bank of Thailand had discussed with
the International Monetary Fund the possibility of a currency
board system to control baht volatility.

The Philippine peso slid back after rising through its first
volatility band at 37.568 to the dollar on early inflows of
portfolio funds.

In north Asia, the Taiwan dollar finished higher on the yen's
strength and rises in other Asian currencies.

The Hong Kong dollar held up while forwards fell to three-
month lows amid continuing strength in regional markets.