Rupiah, shares weaken further

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)