The rupiah hit its weakest level since 2001 in afternoon trading Thursday as speculators panicked in response to the central bank's recent restriction on foreign exchange transactions.
It was not until the central bank stepped in that the value of the rupiah returned to 11,800 per dollar at 4:11 p.m. in Jakarta, after reaching 11,998, its lowest point since 2001, according to Bloomberg.
The value of the rupiah has tumbled 17 percent in the past month as people look for dollars on fears the world is entering a recession, with speculators exacerbating the situation by hoarding the currency.
"The slump was driven by speculators looking for dollars to cover their losses in forward contracts," said Martin Panggabean, chief economist at state-run Bank Mandiri.
A forward contract is an agreement in which parties buy or sell assets for delivery at a later specified time and date.
Martin said traders might hoard as much of the U.S. currency as they could out of fear they might not be able to collect enough for later delivery because of the recent Bank Indonesia (BI) policy to limit purchases of foreign currencies.
Under the regulation, Indonesian citizens or firms wanting to purchase more than US$100,000 in foreign currencies must provide evidence of underlying transactions, such as invoices used to import goods or pay debts.
Foreign parties can only purchase amounts above $100,000 through spot transactions.
The regulation is expected to limit speculative purchases of currencies. With the regulation in place, BI expects banks to be able to detect when customers purchase dollars for speculative purposes.
Capital control enables the government to more easily manage the flow of short-term funds, or hot money, in and out of Indonesia, according to independent currency analyst Farial Anwar.
Martin said the decline in the rupiah was proof of the effectiveness of the BI policy, as speculation would be rife for a short period before easing in the future.
He said he expected the rupiah to strengthen within a month as speculation subsided.
"Perhaps it will strengthen in less than a month, in two or three weeks," he said.
Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said the value of the rupiah had tumbled because market players were afraid they would have difficulties in purchasing dollars.
"At the moment, any regulations can be perceived negatively. Perhaps they thought the new regulation would be a capital control-like mechanism," he said.
| 
|
|
|
|
|
|
|