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)