Rupiah firms slightly on SBI speculation

Rupiah firms slightly on SBI speculation

JAKARTA (JP): The rupiah ended marginally firmer against the
U.S. dollar yesterday on market speculation that Bank Indonesia
would raise rates for its short-term promissory notes (SBI) this
week.

Currency dealers said most investors sensed a strong
indication from the government that it would increase the rates
as part of its efforts to drain excess liquidity from the market.

"There is strong market expectation that the interest rate
will be raised soon, (which is) prompting investors to buy the
rupiah today," a dealer with a local private bank said.

Despite earlier market expectations of a possible rate
increase, Bank Indonesia announced last week it would maintain
its SBI rates.

Nevertheless, Minister of Finance Fuad Bawazier indicated in
New York over the weekend that the government could again
increase the interest rates to shore up the rupiah's value.

Dealers said the market expected the central bank would raise
the one-month SBI rate to as high as 60 percent, up from its
current level of 45 percent.

"If this scenario happens, we will see the rupiah strengthen
to between the 7,000 and 7,500 level in the next few days," the
dealer said.

Spot rupiah, which opened at 8,000/8,200 against the American
dollar yesterday, closed slightly higher at 7,900/8,100.

Its close yesterday was 1.5 percent stronger than its close of
8,200 on Friday.

Only painful measures, such as increasing interest rates, can
support the beleaguered rupiah, dealers said, but they warned the
currency could easily weaken once interest rates were cut.

They said this could happen because the government was
preoccupied with so many tough problems, such as the handling of
huge private sector debts and the restructuring of the ailing
banking system.

They added that simmering political tensions would continue to
shadow the rupiah.

Stock prices on the Jakarta Stock Exchange (JSX) ended on a
slight increase yesterday.

The JSX Composite Index edged up 0.25 points to 508.15 on
total turnover of around 431.18 million shares changing hands on
the regular market worth Rp 398.48 billion (US$49.19 million).

Stockbrokers said trading activities on the local market
remained moderate as most investors remained on the sidelines.

"There is nothing much we can do with the local market,"
Christina Lim of Harita Securities said.

"Why should we invest in the stocks if deposit rates in the
banking system offer a higher yield?" she said.

She added that trading activities would be even more
directionless in the coming weeks, depending largely on the
movement of SBI rates. (aly)