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By Elizabeth Pisani
679 words
5 March 1991
Reuters News
(c) 1991 Reuters Limited

JAKARTA, March 5, Reuter - Indonesia's central bank sold dollars actively on the Jakarta market, bringing the U.S, currency tumbling back from the heady levels of early trade.

Dealers said the selling, which began around 2.30 p.m. local time (0730 GMT), sent the dollar down an unheard of 24 rupiah in half an hour, settling it at 1,926. "It's good to see BI (Bank Indonesia) being so decisive," one dealer said. "There is talk Bank Indonesia is not ready to sell dollars to the market. That is absolutely untrue. We will continue to sell spot dollars into the market as usual," BI director Paul Sutopo told Reuters.

Sutopo, in charge of foreign exchange for the central bank, was speaking as the dollar hit 1,945/50 rupiah on the spot market. Shortly afterwards he set off a wave of selling which was far from usual.

Bank Indonesia fixes a dollar rate at 1500 local time (0800 GMT) each afternoon, guaranteeing to buy or sell dollars at either end of a six-rupiah spread.

But this time it began calling dealing rooms before the fix, offering dollars around 1,933, dealers said. By fix time, it was able to set the rate at 1,920/26, comfortably unchanged from the morning indication.

That dealers bid the dollar up so high in the knowledge they could go to BI after the afternoon fix says much for the market's psychological reluctance to buy from the central bank.

"There's this idea that if you go (to BI) and ask for dollars, the next thing you know the auditors are coming around," said one treasury manager.

Another manager said the facility was there to be used but said central bank dealers often refused to deal in large amounts.

"We've had a lot of hassle. There's no guarantee you'll get what you want," he said.

Sutopo did not say if the central bank was prepared to guarantee deals up to a given amount. "I wish BI would just come out and say to us you can do 50 million (dollars) a day," said a bank treasurer. "There is a lack of trust on both sides."

Dealers said early dollar buying was sparked by corporate clients wanting to cover rupiah exposure after devaluation rumours riddled the market last week. "We tell our clients look at the fundamentals, it's just not going to happen but they just say no, you look at the market. I don't want to be left behind," a dealer said. She said many large Indonesian companies had no hedging at all to protect themselves from devaluation.

Dealers at local private banks said they were actively selling dollars forward to corporate clients. "And at premiums of not less than 30 per cent. If we lock that in for three months you won't hear us complaining," one said.

But those banks are now scrambling to cover themselves by buying dollars on the spot market, driving skywards prices which usually hover around Bank Indonesia's sell rate.

Bank Indonesia's cheap dollar rupiah swaps added to the confusion of the market, dealers said. BI, wanting to encourage investment in export-led industries, will swap dollars into rupiah for firms who can show they borrowed dollars offshore.

"There are lots of firms with unused swap facilities who are suddenly thinking well, why not protect ourselves a bit. The trouble is they have already spent the money they brought in unhedged. So they are bidding up dollars on the spot market," a dealer said. "But if it weren't so cheap they wouldn't do it."

Bank Indonesia's swap premium today stood at 17 9/16 pct. Add to that the cost of borrowing dollars offshore, around 8.5 pct, and you end up with rupiah which, at just over 26 pct, cost much less than the 30 pct you could pay to borrow in Jakarta -- and with no foreign exchange risk, dealers said.


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