Rupiah hits four-month low as Wiranto standoff lingers

Rupiah hits four-month low as Wiranto standoff lingers

SINGAPORE (Dow Jones): The rupiah dropped again in late Asian
trading Thursday as the standoff between Indonesian President
Abdurrahman Wahid and powerful Security Minister Gen. Wiranto
continues.

However, regional currencies were mixed following the U.S.
Federal Reserve Wednesday fulfilled market expectations and
lifted the Fed Funds rate 25 basis points.

After slipping to Rp 7,700 against the U.S. dollar in early
Asian trade, its lowest level since mid-October. The rupiah ended
at Rp 7,660, down from Rp 7,520 late Wednesday. It is down more
than 8 percent since the start of the year.

Wahid has demanded the former armed forces chief's resignation
after a government report blamed him and other top officers for
atrocities in East Timor last year. But, Wiranto continues to
ignore calls for his resignation, which some observers interpret
as a signal he will defy Wahid.

This would add to tension between the administration and
disgruntled elements within the military, and has sparked talk of
a military coup.

Rupiah weakness prompted Bank Indonesia to change policy
Thursday and pledge a tighter money supply, a move that
automatically hikes interest rates, in a bid to defend the
flagging currency. The decision immediately pushed overnight
rates up around half a percentage point to 9.75 percent/10
percent.

While lifting interest rates to defend a currency often
doesn't work - speculators may view it as a sign of weakness and
sell it more aggressively - some analysts believe recent events
could provide good levels to buy the rupiah.

Bank of America says the rupiah could weaken toward Rp 7,800
in the short-term, but anticipates a rebound to as high as Rp
7,300 when the matter is resolved. The bank expects Wiranto will
either resign or be dismissed around Feb. 13 when Wahid returns
to Indonesia after a series of meetings with foreign business and
political leaders.

A rebound in Jakarta shares Thursday suggests investors
believe the market has overreacted to the looming showdown
between Wahid and Wiranto.

The Jakarta Composite late in the day was up 8.96 points, or
1.5 percent, at 612.5, after posting losses in the previous two
sessions.

Elsewhere, the Singapore dollar was slightly stronger late
Thursday as traders took profits on long U.S. dollar positions
after the Federal Reserve lifted interest rates by 25 basis
points.

"It was a case of buy the rumor of the hike and sell the
fact," said one trader at a Singapore bank.

A belief the Monetary Authority of Singapore still has an
interest to sell U.S. dollars above S$1.7000 to smooth the local
currency's recent slide also helped the Singapore dollar higher.

But political instability in Indonesia and the continued
underperformance of Singapore equities means its upside remains
limited for now.

Late in the day, the U.S. currency was quoted at S$1.6955,
down from S$1.6985 at Wednesday's close.

The Korean won ended a touch higher against the U.S. dollar
after a slight strengthening in the yen against the U.S. currency
to Y108 from Y109 late Wednesday.

Exporters also bought the won to settle accounts with
suppliers and to buy holiday bonuses ahead of a lunar New Year
holiday this weekend. At the close of trade, the dollar was at
1,129.9 won from 1,130.5 won late Wednesday.

The U.S. currency was quoted at 37.680 Thai baht, up from
37.560 baht, and at 30.775 New Taiwan dollars from NT$30.767 a
day earlier.

The Philippine peso closed Thursday at 40.680 against the U.S.
dollar from 40.640 pesos previously.