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.