Rupiah softens on ample liquidity in market

Rupiah softens on ample liquidity in market

JAKARTA (JP): Local share prices gained 2.6 percent yesterday
as the rupiah softened on ample liquidity supply in the money
market, stockbrokers and currency dealers said.

Brokers said stock prices rose on the lowering of interbank
lending rates following an influx of liquidity into the money
markets from the disbursement of civil servant monthly salaries
to banks and the maturing Bank Indonesia Certificates (SBIs).

The Jakarta Stock Exchange composite index gained 14.163
points to close at 553.646, with turnover totaling 342.3 million
shares valued at Rp 493.873 billion (US$163.8 million).

Vice president of research at Lippo Securities, David P.
O'Neil, said that despite regional bearish sentiment, some
investors started reentering the Jakarta market as they saw
positive moves from the government to deal with currency-related
problems.

"There were some valued foreign fund managers and valued
investors who made a lot of buying into value-added stocks,"
O'Neil said.

He said companies like Fiskar Agung and Davomas were among the
stocks to be chosen because these companies were not highly
exposed to foreign exchange loss and generated most of their
revenue in U.S. dollars.

Currency dealers said the rupiah, apart from tracking the
Malaysian ringgit, softened as overnight rates among state banks
and large sound banks declined to 15.5/20 percent from 20/25
percent in the morning.

"Call money rates grew closer to SBI rates on ample liquidity.
But this dragged down the rupiah against the U.S. dollar in the
spot market," one local bank dealer said.

Spot rupiah closed at 3,012/3,018 against the greenback,
compared with the day opening of 2,965/2,970 and Tuesday's close
of 2,995/2,999.

The dealer said local operators and corporate companies were
using the improved liquidity to buy spot dollars while unloading
swaps, reflected by falling rates.

Overnight swap was at 0.45/0.60. Tom/next shed to 0.40/0.45
from 0.85/0.95 points.

One-week swap edged down to 4.6/5.5 from 4.8/5.9, one-month to
30/33 from 30/34, two to 61/65 from 66/71.

Longer term rates were slightly changed, with three-months at
80/90, six at 188/193 and one-year at 360/385 points.

"The market has anticipated that the central bank will likely
lower again short-term SBI rates next week, probably on Monday as
the previous cuts were conducted Monday," the dealer said.

But he warned that Bank Indonesia would likely tighten again
liquidity before cutting SBI rates to stop the rupiah from
further falls.

Yesterday's ample liquidity supply and further anticipation of
lower interest rates drove short-term swap rates down.

But lower swap rates, compared to call money rates, had
created chances for arbitrage.

"I saw foreign players already starting to again enter
arbitrage deals to benefit from rate differentials," he said,
adding that the equivalent of one-month swap was about 20 percent
compared with a money market rate of 23 percent.

Aggressive arbitrage deals could tighten the rupiah market
again as the month's end approaches, he said.

The dealer predicted the central bank would likely also target
reducing rate differentials between the swap and money markets to
discourage arbitrage deals. (aly/rid)