Rupiah rallied by moves to raise interest rates
Rupiah rallied by moves to raise interest rates
JAKARTA (JP): The rupiah rallied yesterday as fund managers
sold their dollars to benefit from the sharp increase in the
domestic interest rates.
The rupiah ended the day at 8,500 against the U.S. dollar, up
from Monday's close of 8,900.
Money market dealers said that some overseas fund managers had
sold their dollars and switched their investments to one-month
rupiah deposits to benefit from the sharp increase in the
interest rates.
Local banks raised interest rates on one-month deposits to
between 50 percent to 65 percent per annum yesterday following
the rise in the interest rates of the central bank's promissory
notes (SBIs).
Bank Indonesia's rates on two-day SBIs were raised Monday to
41 percent from 35 percent, three-to-six days to 42 percent from
30 percent, one week to 43 percent from 25 percent, two-week to
44 percent from 24 percent and one-month to 45 percent from 22
percent.
Two-month SBIs rates were also raised to 40 percent from 20
percent, three-month to 30 percent from 19 percent, six-month to
20 percent from 18 percent and one-year to 18 percent from 16
percent.
Commercial banks are allowed to increase their rates to a
maximum 1.25 times over SBI rates.
The dealers said that some overseas fund managers were also
seen placing their funds in SBIs notes, especially those with a
maturity of between two weeks and one month.
Money market analysts said the bullish market also resulted
from investors' increased confidence in the Indonesian economy.
Encouraging signs that the International Monetary Fund would
soon disburse the second $3 billion tranche of its rescue funds
to Indonesia was also one important factor in the renewed market
optimism.
According to Reuters, other Asian currencies mostly held their
ground yesterday as the Malaysian ringgit gave way to mild
disappointment over Finance Minister Anwar Ibrahim's eagerly-
awaited speech on economic targets and policy.
Malaysia's widely expected downward revision of its 1998
growth forecast to two to three percent from four to five percent
and its higher annual inflation target of seven to eight percent
were welcomed as more realistic.
But dealers said there was disappointment with the lack of any
significant policy changes to address the fallout from the
country's economic crisis.
"The measures show a lack of substance. The market doesn't
think they'll do anything to change the economy," a U.S. bank
dealer said.
Dealers and analysts said the ringgit might have seen a top
near 3.50 for the time being, and could head back towards 3.70,
particularly if a proposal to lower banks' statutory reserve
requirements (SRR) by one to two percent were carried out.
The Singapore dollar was on the lower end of its 1.61-1.62
range to the U.S. dollar following the ringgit's fall and heavy
corporate demand for the U.S. dollar.
The Thai baht was softer but pulled back from lows below the
39.00 level as traders took a more cautious view of its recent
rally.
Prime Minister Chuan Leekpai said the baht remained weaker
than its fundamentals despite its recent sharp rise toward 38 to
the dollar.
The Philippine peso strengthened toward the 37.00 per dollar
barrier, prompting Manila traders to move their near-term target
higher in the face of weak corporate dollar demand and the
healthier tone of regional currency markets.
The South Korean won was weak but off its lows after a
volatile session, which saw it swing between speculative demand
for cheap dollars and unwinding of long dollar positions on
expectations of more dollar supplies for the rest of the month.
(hen)