Stock prices plunge 4.8% as rupiah remains stable

JAKARTA (JP): Stock prices on the Jakarta Stock Exchange suffered the biggest intraday drop of 4.8 percent yesterday while the Indonesian rupiah was stable at 2,700 level against the U.S. dollar.

The composite index dropped 28.665 points to 574.395 -- its lowest close since Nov. 1 and turnover totaled 404.5 million shares valued at Rp 580.3 billion (US$212.6 million).

Securities analysts attributed the plunge to the increasing worries over the health of the country's banking industry as a result of the rupiah's volatility.

"The banking stocks are likely to be under strong selling pressure because their performance is likely to be poor as a result of the increasing interest rate," an analyst said.

Standard & Poor said Thursday it affirmed its ratings on Bank Negara Indonesia (BNI), Bank Danamon and Bank Umum Nasional but revised the outlook on these ratings to negative from stable.

Brokers said the S&P report downgrading some of the country's largest banks had also weakened sentiment on other banks not included in the report.

Bank Internasional Indonesia lost Rp 150 to Rp 1,100, Bank Danamon fell Rp 125 to Rp 775, Bank Dagang Nasional Indonesia slipped Rp 125 to Rp 750 and BNI was down Rp 50 to Rp 1,150.

Martin Panggabean, an economist from Lippo Securities, said yesterday a further plunge of the stock market was understandable as investors had to sell most of the shares they held to obtain the rupiah.

"How do you expect people to buy stocks when they do not have rupiah in hand?" he asked.

An analyst from Harita Securities said yesterday investors were still cautious to enter the stock market.

"The nightmare is not over yet... and the rise in yesterday's market was merely based on a technical rebound.

"It is still difficult to make any prediction given the current volatile market," she said.

In the foreign exchange market, the rupiah was stable against the U.S. greenback in slow trading yesterday, dealers said.

They said spot rupiah, which opened at 2,660/2,690, suddenly dropped 2,735 due to concerns over S&P's report. But the tightening rupiah liquidity stopped the rupiah dropping further.

The currency strengthened in the afternoon as most banks sold dollar in the spot market and bought them back through the forward market. The spot rupiah closed at 2,700/2,720.

One local bank dealer said there was plenty of arbitrage opportunity in the swap market for banks with adequate net open positions.

Overnight swap was at 35/40 points, one-week at 75/80, one- month at 210/215, two at 265/280, three at 320/360 and six at 410/440 points.

He said overnight rupiah liquidity improved in the afternoon, with overnight money falling to 40 percent from 90 percent earlier. One-week money was at 65 percent, one-month at 70/75.

The rupiah fell to an historic low of 3,045 after Bank Indonesia, the central bank, floated the currency last week in the wake of sustained speculative attacks on regional currencies.

The rupiah started recovering following the central bank's shock increase of interest rates to drain excess rupiah liquidity from the market.

The central bank doubled one-week promissory notes (SBI) to 20 percent, two to 22 percent, one-month to 30 percent and three to 28 percent.

The central bank also remained absent from the short-term securities (SBPU) market.

Head of the treasury division at LTCB Central Asia Bank, Farial Anwar, said everyone in the foreign exchange market should remain vigilant as the currency had not yet stabilized.

"Although the trend on rupiah is improving, it does not mean it's safe already," Farial told journalists.

The outlook for next week remained unchanged, with the focus on interest rates and the tight policy, Farial added.

He said the liquidity squeeze would continue or tighten further because of the maturing central bank forward intervention Monday, combined with the approaching month's end.

Coordinating Minister for Economy and Finance Saleh Afiff indicated yesterday that the government would not ease rupiah liquidity early next week.

He said the government's main concern was to stabilize the currency and called on the private sector to support the government's measures.

He assured businesses and the people that the current currency crisis would end soon if they supported the government.

"Storms don't last long," Afiff said. (aly/das/rid)