Rupiah, stock prices plunge despite tigh money policy

JAKARTA (JP): Despite tight money policy, the Indonesian rupiah continued to weaken yesterday, almost touching the 3,000 level against the U.S. dollar, and the stock market dropped 4.5 percent, dealers and brokers said.

Foreign exchange dealers said spot rupiah, which opened at 2,900/2,915, strengthened to 2,890 at lunchtime when Singapore players started buying the currency.

But local players started buying dollars after lunch forcing the rupiah to weaken and close at 2,960/2,970.

"Look, when the central bank raised one-month rates for Bank Indonesia Certificates (SBI) to 30 percent, the rupiah was traded somewhere at 3,000," said one local foreign exchange bank dealer.

"Now the rupiah is down to that level again, while the SBI rate remains 30 percent. It means high interest rates are not effective in defending the currency," he added.

But high SBI rates had caused local banks big losses, he said. Banks had to pay higher deposit rates but could not lend the funds at higher rates because not a single sensible company was willing to pay more than the 30 percent lending rate.

Chairman of the Institute for Economic Studies, Research and Development, Sjahrir, said the central bank should abandon its high SBI rate policy to avoid runs on banks and corporate bankruptcy.

He said the high SBI rate policy had also killed the stock market, which had suffered market capitalization losses of up to Rp 70 trillion (US$23.7 billion) since July 8.

Yesterday, share prices on the Jakarta Stock Exchange tumbled again by 4.5 percent, with the composite index falling 25.096 points to close at 530.366.

Turnover totaled 318.932 million shares valued at Rp 393.888 billion, compared to 415.1 million shares worth Rp 478.5 billion in the previous session.

Securities analysts attributed yesterday's fall to the weakening of the rupiah and high interest rates.

"There is no need to watch the stock market now but we should watch the money market," said an analyst with a joint venture securities house.

An analyst from Asian Development Securities, Sandra Sinaga, said most investors had left the Jakarta exchange because it no longer promised sufficient investment gains.

Sandra said some stocks, especially blue chip ones, were very cheap now and it was a good time to buy.

"But where do investors get the money to buy shares when there is no liquidity in the market," another analyst asked.

Foreign exchange dealers said the central bank remained consistent with its tight policy and continued to close short- term securities (SBPU) facilities and SBI repo (repurchase).

Besides, the central bank was keeping bilateral SBI rates unchanged: overnight bilateral SBI at 15 percent, four-to-six day at 16.0 percent, seven at 20 percent, two-week at 22.0 percent, one-month at 30 percent, three at 28 percent, six-month at 12.125 and one-year at 12.75 percent.

Despite attractive yields on rupiah, regional pressure appeared to be driving the rupiah into a weaker zone, dealers said.

Southeast Asian currencies crumbled as the ringgit threw off all remnants of poise and slumped to historic lows.

Dealers said liquidity remained the market focus because of the month-end factor, with overnight inter-bank money rising to 50 percent from the day's low of 20 percent.

But the market was supplied with fresh liquidity from maturing SBI, totaling Rp 875 billion yesterday. (aly/rid)

Currencies -- Page 11