Rupiah shoots up to 8,800 against dollar, stocks jump 8.4%

JAKARTA (JP): The local financial market recorded significant advances on Thursday, with the rupiah breaking the 9,000 level to hit an intraday high of 8,800 against the U.S. dollar and share prices jumping 8.4 percent, dealers said.

They said a bullish trend in the regional currency market coupled with persistent talk of a possible introduction of capital controls and dollar-selling by state banks were the driving forces behind the rupiah's strong gains.

A chief dealer with a local private bank said: "I think investors, especially from Singapore, are afraid of maintaining their long-dollar positions for any longer because they sense the strong likelihood of an imposition of capital controls in the country."

The rupiah opened at 10,500 to the dollar but quickly shot up to break the 9,000 level for an intraday high of 8,800 before morning trading ended. It, however, fell slightly in the afternoon to close at 9,100.

The rupiah closed on Wednesday at 9,500 and had been trading near the 11,000 level last week.

Given the rupiah's strong showing over the past few days, offshore operators -- the main players in the rupiah-dollar market -- have been wary of building any new positions on the dollar, dealers said.

The lingering fears of a possible imposition of capital controls remained the dominant factor behind the rupiah's strong gains on Thursday despite government denials of such a move.

Coordinating Minister for Economy Finance and Industry Ginandjar Kartasasmita said on Thursday the government was studying all options to improve foreign exchange flow management but had ruled out the possibility of capital controls.

Besides the issue of capital controls, dealers also attributed the bullish sentiment on the rupiah to the peaceful opening of Megawati Soekarnoputri's congress for her faction of the Indonesian Democratic Party in Bali, the country's main tourist destination.

The rupiah's rally would, however, be curtailed by the decreasing benchmark interest rates of Bank Indonesia's short- term promissory notes (SBIs), the dealers said.

The auction of one-month SBIs on Wednesday produced a yield of 60.03 percent per annum, compared to 64.74 percent last week and over 70 percent early last month.

The falling rates, however, would continue to boost equity investments in the shattered local stock market, stockbrokers said.

Share prices in the Jakarta Stock Exchange rose 8.4 percent, or 22.38 points, to close at 288.55.

Trading volume totaled 358.15 million shares changing hands valued at Rp 408.22 billion.

Gainers led losers 99 to 14 with 64 stocks remaining unchanged.

Stockbrokers said the sharp rise was fueled by relatively heavy foreign buying of certain selective stocks.

The strengthening rupiah and falling interest rates were the main reasons driving foreign investors to reenter the market, they said.

Bahana Securities associate director Andre Cita said the market perceived some early signs of recovery in the country's economy, prompting investors to enter the market.

"People have been waiting for good news so far ... and when they see some, they just jump into the market immediately," he said.

But he warned that the increase in stock prices on Thursday would not be sustained for long since the country's economic and political situations were still volatile.

"Investors will not really want to stay long in the local market until they really see some good news coming down," he said.

Most large-cap stocks rallied on Thursday, with market leader telecommunications firm PT Telkom gaining Rp 175 to close at Rp 1,600 on 54.78 million shares traded. (aly)