Rupiah falls over 5% in panic selling

JAKARTA (JP): The rupiah plunged over 5 percent to the U.S. dollar on Wednesday as panic selling sent the Indonesian currency to a two-month low.

Foreign currency dealers said the rupiah closed at its two- month low of Rp 7,770 to the American greenback from the previous day's close at 7,340.

A dealer at a major private bank said that the rupiah breached the 8,000 level to reach its three-month low of Rp 8,400 in morning trade, but managed to recover in the afternoon after several state banks sold their dollars to arrest a further drop in local currency.

The dealers said that the government intervened the market through a state bank by buying local money when the rate was at Rp 8,100 in late trading.

In morning trade, a number of state banks were also seen buying rupiah in a bid to defend the currency at the Rp 7,000 level, but the currency went further down when the state banks let go of their dollar buying, according to dealers.

"The dollar hit its three-month low of Rp 8,400 in morning trade due to panic selling," a dealer said, adding that the trading was extremely active with transactions exceeding US$1 billion, which was far higher than the daily average of $200 million.

Bank Indonesia governor Sjahril Sabirin said rupiah trading on Wednesday did not reflect the real value of the currency to the dollar.

"The weakening of the rupiah to the Rp 8,000 level, as it did yesterday morning, was not realistic," Sjahril said, pointing out that news on the bloody incidents in Ambon and Aceh helped bring negative sentiment toward the currency.

He strongly believed that the rupiah would be back to its previous level of Rp 6,000 to the dollar in one or two days.

The panic selling on the money market posed a blow to the local stock market, with the Jakarta Stock Exchange (JSX) Composite Index falling nearly 4 percent to close at 554.26 in active trading.

Currency analysts said the rupiah's fall was triggered by the worsening of public confidence in the country's financial authorities.

"Investors fear there could be a bigger scandal in other banks which could further jeopardize the country's already weak banking industry," one analyst said.

An analyst from Lippo Securities, Martin P.H. Panggabean, said that on the fundamental side, there were no explanations to Wednesday's rupiah plunge.

Other analysts said that low interest rates also partly contributed to the fall of the currency.

The government, pressured by the International Monetary Fund (IMF), has been steadily lowering the interest rates from around 35 percent at the beginning of the year to just over 13 percent at present. (udi)