Rupiah, shares weaken further

JAKARTA (JP): Despite the restrictions on forward foreign exchange transactions, the rupiah weakened further against the U.S. dollar yesterday to cross the 3,000 level.

Local stock prices also fell by 1.4 percent, dealers and brokers said.

Foreign exchange dealers said the ceiling on forward selling to nonresident at US$5 million per customer could not salvage the rupiah as domestic appetite for the dollar remained high.

Spot rupiah, which opened at 3,010/3,030 yesterday, continued to weaken to close at 3,040/3,060, they said.

Dealers said trading in both spot and forward markets was very slow and the volume was very thin. Therefore rates were exaggerated, with quotes seen coming in $1 million or $2 million.

"The market is still very quiet. But when overseas players unloaded dollar, I saw domestic players quickly cover it. This situation will continue to shadow the rupiah," one local bank chief dealer said.

He noted that as long as uncertainty prevailed, people -- especially wealthy locals -- would continue to switch their rupiah investments, including in stocks, to dollars.

Meanwhile, share prices on the Jakarta Stock Exchange (JSX) fell 1.4 percent on continued uncertainty over when the government would ease rupiah liquidity and cut down interest rates.

The JSX composite index closed down 6.955 points at 479.014, with total turnover of 205.2 million shares valued at Rp 283.020 billion (US$93 million).

Stock analysts attributed the continuing doldrums in the stock market to the rupiah volatility and regional stock market's bearish trend.

The president of a securities firm who declined to be named said the whole situation was already unpredictable and this further dampened the stock market.

"Everyone is selling a lot to get out of the market," she said.

She added that she had advised her clients to sideline until the market recovered.

"But we never know when the market will recover," she said, adding that the prices of blue chip stocks were already very cheap to buy.

Economist Sri Mulyani Indrawati said yesterday it was speculation and political issues, not economic fundamentals, that mostly influenced the currency market and determined the fate of rupiah.

"Therefore, the government should work harder to further improve the credibility of its policy-making mechanism to prevent market hysteria," Sri said.

Foreign exchange dealers said that measures taken by the government to defend the currency indicated that it was actually reluctant to let the market decide the fair worth of the rupiah.

"The government floated the currency, but it did not let the market decide its worth. I don't know why the government is fighting all out to defend the currency while destroying the banking industry, stock markets and corporates," said one local dealer.

"In this situation, foreign banks prosper, while local banks suffer the most," he added.

He said many local banks had lost trading lines with foreign banks. Trading links had even been severed among some local banks.

In addition, large local depositors, especially individual depositors, had moved their funds to foreign banks as they trusted them more than local banks, he said.

The dealer said there was talk of Jakarta operators buying overseas dollar call options, suggesting an underlying tendency to be long on the dollar in the current uncertain environment.

Liquidity was slightly tighter than Monday, with overnight money last traded at around 35 percent to 40 percent.

The central bank maintained its rates for short-term bilateral certificates (SBIs) at a range of 15 percent to 30 percent and remained absent from the short-term securities market. (aly/rid)