Rupiah rebounds on BI support
The Jakarta Post, Jakarta
The latest concerted measures taken by the government and the central bank to help the rupiah have proven to be successful, as the local currency managed to break free of its seven-day slump against the U.S. dollar and began rebounding to a stronger level.
The rupiah nudged slightly higher on Wednesday to Rp 9,785 a dollar, from Tuesday's closing of Rp 9,870, its lowest rate in the past two years.
In an effort to bring the country's daily forex market back into balance, the government and Bank Indonesia (BI) announced on Tuesday that it would provide state oil and gas firm PT Pertamina's huge, market-distorting oil import dollar needs directly from the country's forex reserve.
The government and BI will also arrange the dollar supplies for other state-owned enterprises (SOEs) through appointed state banks, and require them to place their forex export proceeds in local banks.
The central bank's new inflation targeting reference rate, set at an initial 8.5 percent, also proved to become another positive factor for the rupiah. Higher interest rates should help the local currency by making it more attractive to invest in, and mop up excess market liquidity.
In an open auction of its SBI promissory notes on Wednesday, the central bank managed to sell Rp 15.1 trillion (US$1.54 billion) of its one-month notes at a weighted average yield of 8.44 percent -- up from its previous 8.25 percent -- with bidders requesting yields ranging from 8.19 percent to 8.63 percent.
BI's three-month interest rate also rose to 8.45 percent -- from 8.05 percent -- with bids requesting yields between 8.38 percent and 8.63 percent. The auction managed to absorb Rp 160 billion of market liquidity.
The rupiah's strengthening, however, failed to provide enough positive sentiment for the Indonesian market, as share prices slipped from falling telecommunication bluechips.
Stocks ended lower on Wednesday, with the Jakarta Composite Index shedding 13.356 points or 1.2 percent to 1117.812, on the back of market concern that state telco firm PT Telkom might get its U.S.-listed shares suspended if it fails to file its 2004 earnings on time.
Meanwhile, contrary to the positive sentiment it brought for the rupiah, the central bank's new BI rate proved disadvantageous to the stock market, as bank shares fell on concerns that the rising interest rates might hurt profits.
Shares of the country's three largest state banks -- Bank Mandiri, Bank Negara Indonesia and Bank Rakyat Indonesia -- all fell by 0.7 percent, 1.8 percent and 0.9 percent, respectively.
BI's rising benchmark rate -- meant to help manage inflation at its 7.5 percent target for this year -- could hurt businesses, as it would influence banks to raise their interest rates as well, making loans to corporations more expensive.
The rupiah is expected to further strengthen on more positive sentiments, as BI will also implement its newest anti-speculative regulation next week, requiring banks to limit their overseas dollar loans to a maximum of $1 million without underlying assets.