Rupiah regains after plunging

JAKARTA (JP): The Indonesian rupiah reached a record low yesterday but recovered again after Bank Indonesia, the central bank, intervened in the market, dealers said.

They said spot rupiah, which opened at 2,645/2,651 against the U.S. dollar, nosedived to 2,680 by midday -- just two points away from its lower permitted limit of 2,682.

The central bank intervened in the market through spot and forward deals which helped prop up the rupiah to 2,625 -- the highest level in the day.

The central bank also raised interest rates of its short-term promissory notes, Bank Indonesia Certificates or SBIs, by one percentage point to tighten the rupiah liquidity.

But the dollar-buying mood prevailed among nervous investors even after the central bank's intervention, forcing the rupiah to weaken further and close at 2,650/2,656, dealers said.

Analysts said speculative attacks on the rupiah would continue as the market was still testing the upper side of the central bank's intervention band and they wanted to break it.

Given it would make little sense to intervene aggressively on a consistent basis and drain foreign currency reserves, the central bank might widen the band, analysts said.

The central bank has widened its intervention band from 2 percent to 12 percent several times to make speculation more expensive. The last widening of the band was taken several days after the de facto devaluation of the Thai baht and the Philippines peso early last month.

Bank Indonesia Governor J. Soedradjad Djiwandono and Minister of Finance Mar'ie Muhammad yesterday met with local media chief editors to explain the government's actions to defend the rupiah against wild speculation.

Director General of Taxes Fuad Bawazier said yesterday in a circular letter that any income derived from exchange rate differentials would be subject to income tax.

As the rupiah weakened, share prices on the Jakarta Stock Exchange were down 0.7 percent yesterday, with the composite index falling 4.34 points to close at 658.60.

Total turnover reached 174.76 million shares worth Rp 318.24 billion (US$122.87 million) changing hand on the regular market.

Harita Securities' analyst Karman Pamurahardjo said the weakening rupiah and increasing interest rates had forced stock investors to stay out of the market.

"The central bank's move to further increase the interest rate has dampened market sentiment," he said.

"The market is likely to stay like this for the next few months until there is positive incentive from the government," he added.

Stock analysts said both foreign and domestic investors had dumped their stocks due to the increasing incentives in the foreign exchange market.

Foreign investors discharged local stocks to buy dollar, while local investors sold stocks and invested the funds in fixed income instruments due to the higher yield.

"The central bank's move to tighten rupiah liquidity and increase interest rates has affected not only the banking industry but also the stock market," one analyst said.

Bank Indonesia has been raising short-term SBI rates to discourage dollar buying.

The central bank cut the rates last Friday by 50 basis points when the rupiah looked more stable. But yesterday it raised the rates 100 points, on a tighter net basis policy.

The central bank raised short-term rates but kept long-term rates, which determined lending and spending behavior in the economy, a dealer said.

Bank Indonesia raised its overnight bilateral central bank certificate rates to 15 percent, two-to-six day SBI to 16 percent, one-week to 10.5 percent, two-week to 11 percent, one- month to 11.62 percent, three to 11.5 percent, six to 12.12 percent and one-year to 12.75 percent. (aly/rid)

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