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Bank Indonesia raised its target for key one-month interest rates by 3/4ths of a percentage point to 9.5 percent

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"The measures have been a long time coming," said James Malcolm, currency strategist at Deutsche Bank in Singapore. He added: "There is still a lot of potential incentive for domestic capital flight. This should not just be a one-off rate hike."

At one point on Tuesday the currency had fallen 9 percent. The rupiah recovered after the central bank intervened to buy it, and then held steady after the interest rate move.

The market mayhem is proving to be the sternest economic test yet for President Susilo Bambang Yudhoyono as he faces increasing calls to raise politically sensitive fuel prices.

Yudhoyono, in a hastily called speech, said the latest market turmoil was not the same as the 1997-98 Asian financial crisis. But he said "significant" measures were needed to support the currency, which he hoped to announce on Wednesday.

Record international crude prices of $70 a barrel have taken a heavy toll on Southeast Asia's largest economy. Indonesia needs to buy dollars to pay for oil imports and this has raised fears of a balance of payments crisis. Meanwhile, the government has been hesitant to cut a bloated fuel subsidy bill.

"The currency is moving at the speed of light," said Fauzi Ichsan, an economist at Standard Chartered in Jakarta.

"As the rupiah weakens further and as the bearish sentiment continues, the markets expect bigger positive news to reverse the sentiment."

The rupiah fell as low as 11,750 per U.S. dollar, its lowest in four years and down 9 percent from Monday's close of around 10,700. Later the currency recouped losses suffered earlier, recovering to 10,300 per dollar, from a four-year low of 11,750 hit earlier in the day.

Minutes after opening, the Jakarta Composite Index sank 4 percent after falling 5.2 percent on Monday -- its biggest percentage drop since May 2004. By 0600 GMT, it had recouped its losses and was up 0.9 percent at 1004 points.

Indonesia raised fuel prices by an average 29 percent in March, sparking protests by public transport drivers and students in a dozen cities across the impoverished country of 220 million people, although there was little violence.

A big rise in domestic fuel prices in early 1998 triggered widespread protests that were a factor behind Suharto's ouster.

The stock market has now lost some two thirds of its gains since Yudhoyono's government took office Oct. 20 on the back of promises to revive investment, stamp out graft and create jobs.

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