Rupiah rebounds on BI support

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.