The rupiah remained weak in Jakarta trading on Wednesday even as the central bank started selling dollar-denominated term deposits to Indonesian banks, a move intended to shore up the currency against the American dollar.
Foreign exchange and debt traders in Jakarta said that the latest instrument introduced by Bank Indonesia failed to revive positive sentiment in the market. The central bank received $1.6 billion in bids, more than double the amount that was sold.
“The rupiah was barely affected,” said one foreign exchange trader, who declined to be identified.
Bank Indonesia sold $700 million of seven- and 14-day dollar term deposits to Indonesian banks on Wednesday. The monetary policy regulator sold $150 million of 14-day dollar term deposits at 0.18 percent, and $550 million of seven-day dollar term deposits at 0.167 percent, according to data on the bank’s website.
The auction was the central bank’s first sale since announcing the plan on May 29 as a measure to boost the supply of the currency locally and to stabilize the rupiah.
The rupiah traded at 9,455 against the dollar in Jakarta on Wednesday, slightly lower than 9,448 the previous day. The rupiah hit a one-year low of 9,570 on May 29.
Analysts and traders said that the rupiah and Asian currencies have come under selling pressure from investors in recent weeks. Global risk aversion, driven by the euro zone debt crisis, has prompted investors to sell Indonesian high-yield assets and sought safe havens, such as US bonds.
“The market was still worried about the developments in Europe,” said David Sumual, an economist at Bank Central Asia. “At least Bank Indonesia could ease the flow of dollar liquidity onshore, using this new instrument as additional arsenal,” David said.
There was a short dollar supply in the domestic market, which prompted Bank Indonesia to sell the dollar-denominated term deposits. Bank Indonesia officials said late last month that Indonesian lenders with dollar funds in their books have placed their dollars in overseas banks, which contributed to the decline of the rupiah against the dollar.
The rupiah has weakened 2.7 percent since the start of May.
Foreign holdings of Indonesian bonds fell to Rp 222.9 trillion of as June 12, compared with Rp 224.1 trillion in early June and Rp 228.9 trillion at the end of April, according to data from the debt management office at the finance ministry.
Rahmat Waluyanto, director general of the debt management office in Jakarta, said that the decline in foreign holdings was not a concern. He did not elaborate.
The board of governors at Bank Indonesia said in a statement on Tuesday that the central bank will continue to take efforts to help stabilize the rupiah and contain inflation this year.
“Bank Indonesia will continue to take steps including a mixture of monetary instruments in the monetary operations,” Bank Indonesia officials said in a statement on Tuesday.
Bank Indonesia kept its benchmark rate at 5.75 percent on Tuesday, on continued hopes that holding borrowing costs steady will spur economic growth.