Rupiah falls on reaction to size of SBI rate increase

JAKARTA (JP): The rupiah failed to keep its footing yesterday despite Bank Indonesia's increase in short-term promissory note (SBI) rates and the government's assurances of fully meeting its reform deadlines, currency dealers said.

The dealers said the central bank's 5 percent increase in SBI rates were not in line with market expectations.

"The market was a bit disappointed with such a small increase in SBI rates," a chief dealer with a joint-venture bank said. He added that the market earlier expected Bank Indonesia to raise the rates at least 10 percentage points.

The central bank raised its SBI rates Tuesday between 3 percent and 5 percent to shore up the crippled rupiah.

Dealers said the rupiah, which opened at 7,800/7,850, closed weaker at 7,950 against the U.S. dollar yesterday after touching a day high of 7,750.

The rupiah closed at 7,900 against the American dollar the previous day.

The dealers said fears that student demonstrations would cause instability was another factor in the rupiah's fall.

Dealers have projected that the rupiah could strengthen to between 7,500 and 7,800 in the coming weeks should the country's private debt situation see improvement and if the IMF disbursed its next tranche of funds.

As the rupiah weakened, stock prices on the Jakarta Stock Exchange (JSX) surged slightly yesterday on the back of strong buying sentiment for certain blue chip stocks despite the increase in SBI rates, stockbrokers said.

The JSX Composite Index closed 2.93 points higher to 500.64 points on a total turnover of 455.10 million shares worth Rp 582.03 billion (US$73.21 million).

Brokers said investor expectations that the country would be heading back onto the right track had strengthened investor confidence despite the increase in SBI rates.

"Though the SBI rates were raised, some investors believed that the country is moving onto the right track to recovery," Christina Lim of Harita Securities said. (aly)