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)