Indonesia warns currency speculators of ‘firm action’ as rupiah strikes 20-year low

JAKARTA: Indonesia's finance minister said on Tuesday that authorities will take firm action against currency speculators as the rupiah hit its weakest levels since the Asian Financial Crisis in 1998.

Finance Minister Sri Mulyani Indrawati didn't say what sanctions speculators could face, but warned that large currency transactions would be checked by Bank Indonesia (BI) and the Financial Services Authority (FSA) to ensure they were based on trade or commerce, and not just playing the market.

"If there are parties who are making profits based on other people's sacrifices, then the OJK (FSA) and BI would monitor in detail and take firm action against these players who are profit taking," she said.

Fear of contagion from the economic woes in Argentina and Turkey have driven investors away from emerging markets, and the rupiah has become the second worst performing emerging Asian currency after the Indian rupee, having lost nearly 9 percent of its value this year.

On Tuesday, the rupiah touched 14,940 to the dollar, its weakest in 20 years.

Addressing a parliamentary hearing on the government's  budget proposals, Bank Indonesia Governor Perry Warjiyo said the rupiah should come under less pressure next year as the U.S. Federal Reserve is expected to increase interest rates just three times next year, compared with four time this year.

Earlier on Tuesday, Darmin Nasution, coordinating minister for economic affairs, said authorities were examining the reasons behind the rupiah's drop, saying there had been speculative trading and a technical problem with quotations.

"There were things that pushed the depreciation further, that we think makes it illogical. We're looking to find out why beside Argentina's problem," Nasution said after a meeting with President Joko Widodo attended by other ministers and the central bank governor.

QUESTION ON QUOTATIONS

Bank Indonesia and the FSA had received complaints from fund managers that some commercial banks were not quoting dollar-rupiah rates on Friday, leaving them unable to trade, Nasution said.

"I don't know what happened... but immediately it was resolved," he said. "My point is there are technical problems that should not have occurred, but they happened."

Since mid-May, BI has raised interest rates by 125 basis points and spent billions of dollars in intervention defending the rupiah.

In a bid to anticipate future dollar requirements, Widodo asked ministers to assess how much foreign currency would be needed to pay for imports related to large infrastructure projects underway, Nasution said.

To reduce the oil import bill, Indonesia has sought to boost of the use of biodiesel. And on Wednesday, the government will announce import tariffs on hundreds of consumer goods, Indrawati said.