Rupiah strengthens as stock prices increase

JAKARTA (JP): The rupiah strengthened against the U.S. dollar yesterday and stock prices increased 1 percent following broad recovery in the region, dealers and brokers said.

They said confidence had gradually returned to currency and stock markets following a new reform package announced last week.

Spot rupiah, which opened at 2,920/2,930 against the U.S. dollar, weakened to 2,960 level in morning trading but then strengthened in the afternoon to close at 2,905/2,915.

The Jakarta Stock Exchange composite index, the main share price gauge on the exchange, crossed the 600-point level to close at 600.311 points, up 6.199 points from last Friday's close.

Stockbrokers said the rise in share prices over the past few days was boosted by the government's reform package, especially the interest rate cut and scrapping of the 49 percent foreign portfolio ownership.

"Investors responded to the reforms with strong buying on selected heavyweight stocks," a Usaha Bersama Securities broker said.

Overreaction

But an analyst from another securities house warned that the market overreacted to the reform, which could make the current rise in stock prices unsustainable.

"I guess the market is overreacting to the package, like when it overreacted to rupiah instability last month," she said.

She said yesterday's rise in share prices was incredible because most investors were still cautious over the country's currency market.

Foreign exchange dealers said rupiah had been relatively stable in the last few days and would continue to be so due to regional currencies relative stability.

"Rupiah is relatively stable today, so I guess it is on the way toward stability," one local bank chief dealer said.

He said dollar selling still came from offshore players, including Singapore and London and domestic players continued to absorb it.

The local appetite for dollar was already easing, he said.

"I guess most local corporates have hedged their dollar borrowings and most local banks have squared their positions. That makes the market very quite these days," he said.

The calm market was also a reflection of sufficient liquidity supply.

A balance of Rp 518 billion (US$178.6 million) was available from the central bank papers maturing yesterday.

Eased liquidity has reduced call money rates, with overnight money staying at 35 percent to 40 percent, one- and three-month money at about 28 percent to 30 percent, respectively.

Bank Indonesia, the central bank, yesterday maintained its one-month short-term paper (SBI) at 27 percent and three months at 25 percent.

The bank did not offer short-term securities (SBPU) and also did not hold an SBI auction. (aly/rid)

Currency, Market -- Page 11