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.