Rupiah stable but local stocks fall 5.5%

JAKARTA (JP): Local stock prices plummeted further yesterday in reaction to high interest rates as the government maintained its tight monetary policy to prop up the rupiah, analysts and dealers said.

After falling 4.75 percent last Friday, share prices on the Jakarta Stock Exchange tumbled again by 5.53 percent yesterday, with the composite index dropping 31.75 points to close at 542.65 points.

In the currency spot market, dealers said the rupiah remained stable, trading at around 2,700 level against the U.S. dollar.

Stockbrokers attributed yesterday's stock plunge to a blue- chip sell-off triggered by high interest rates combined with concern over lower corporate earnings following the rupiah's sharp depreciation.

"Most investors have switched to time deposits which offer higher margins," an analyst with a joint venture securities firm said.

He said the rupiah's depreciation would put pressure on corporate earnings, especially for third and fourth quarters.

"Some have even predicted foreign exchange losses and they have to make adjustments to their earnings forecasts," he said.

Retail chain PT Matahari Putra Prima, for example, has predicted a foreign exchange-related loss of Rp 39 billion (US$14.4 million) this year.

An analyst from Arab Malaysian Capital Indonesia Securities, Setiatno Budiman, said the stock market would not recover amid a tight monetary policy and high interest rates.

"While the rupiah is not yet stable and banks offer higher interest rates, don't expect the stock market to gain ground," Setiatno said.

Brokers said selling focus was on blue-chips and banking stocks, but added that falls in heavyweights PT Telkom and Bank Negara Indonesia (BNI) had affected the index.

Losers led gainers by 112 to four, with 16 counters unchanged. Total volume was 347.8 million shares valued at Rp 459.7 billion.

Banking stocks such as BNI, Bank International Indonesia, Bank Bali, Lippo Bank, Bank Danamon, Bank Niaga, Bank PDFCI and Bank Tiara were among the losers.

In the currency market, the Indonesian rupiah strengthened against the greenback in morning trading but weakened slightly in late trading despite relatively tight liquidity, dealers said.

Spot rupiah, which opened at 2,685/2,715, strengthened to 2,670 in morning trading but weakened in the afternoon to close at 2,710/2,720.

Dealers said rupiah was heading toward its equilibrium as trading spread narrowed to 10 points yesterday from 20 points last Friday.

They said some spillovers from renewed pressure on the Thai baht had kept sentiment weak on the rupiah and triggered some dollar buying despite the high rates.

One foreign exchange bank dealer said the market expected the rupiah to strengthen in larger liquidity demand ahead of the month's end and the maturing of the central bank's forward contracts to defend the rupiah.

"Rupiah was getting a bit liquid in the afternoon. Banks started unlocking rupiah to buy dollar," the dealer said.

The overnight interbank rate dropped from about 100 percent last week to 35 percent yesterday.

"I don't know where the liquidity came from, but I suspect they have been prepared in anticipating tighter liquidity today due to the maturing central bank's forward contract intervention," he said.

He added it was hard to know the actual figures for the central bank forward intervention which was scheduled to mature yesterday, but the amount would be about US$500 million.

Banks might also get fresh funds from the public as some institutional investors cashed their stocks and shifted them to time deposits as they offered higher gains with lower risk, the dealer said.

Although dollar buying increased late yesterday, swap margin improved. Overnight swap was recorded at 12.00/16.00, down from 35/40 points last Friday.

One-week swap was down to 50/65 from 75/80, one-month to 170/200 from 210/215, two to 230/280 from 265/280, three to 360/380 and six to 375/410 points. (aly/rid)