RI misses chance to cut inflation on dollar woes<\/p>\n
Urip Hudiono, The Jakarta Post\/Jakarta<\/p>\n
With a fuel price hike just around the corner and likely to
\nput pressure on inflation, monetary authorities should have let
\nthe rupiah appreciate against the dollar to help release some of
\nthat inflationary steam beforehand, analysts said.<\/p>\n
Unfortunately, the local unit is still holding ground at
\naround Rp 9,000 per U.S. dollar, experiencing almost no
\nsignificant gains against the greenback, which recently has
\ndropped in value against major currencies due to concerns over
\nU.S. twin budget and current account deficits.<\/p>\n
Besides attributing the situation to the still-high local
\ndemand for dollars overwhelming its supply, economic observer
\nGoei Siauw Hong said that it also had to do with Bank Indonesia's
\n(BI) intention of keeping the rupiah at a stable rate.<\/p>\n
\"It then depends on whether BI's priority in doing so is to
\nkeep inflation in check, or maintain the competitiveness of
\nIndonesian exporters,\" he said.<\/p>\n
From what he saw, Goei said that it was possibly the latter,
\nas the central bank has not fully released the rupiah's exchange
\nrate to the market, and was even buying dollars from exporters.<\/p>\n
\"By doing so, it could very well have to issue more rupiah
\nbills, and therefore affect the inflation,\" he said.<\/p>\n
\"In my opinion, BI should have traded off more of the export
\ncompetitiveness for inflationary benefits, especially considering
\nthe government's plan to raise fuel prices.\"<\/p>\n
With a stronger rupiah, the price of imported goods can be
\nkept low, thus reducing inflation, which some say could threaten
\nthe economy if the government proceeds with its plan to raise
\nfuel prices sometimes in the first quarter of next year.<\/p>\n
On the other hand, it could well hurt exporters, as their
\nproduction costs in rupiah would rise relatively towards their
\nexport revenue in dollars.<\/p>\n
A stronger local currency in theory could also make Indonesian
\nexport goods more expensive in the overseas market compared to
\nsimilar products coming from countries whose currencies do not
\nappreciate against the dollar.<\/p>\n
Although Indonesian monetary officials have floated the
\nrupiah's exchange rate, it still keeps a tight eye over it, to
\nprevent speculators from wreaking havoc to its value as they did
\nduring the 1997 financial crisis.<\/p>\n
Economist Didik J. Rachbini however said that the current
\nrupiah exchange rate at around Rp 9,000 was already a win-win
\nsolution for all.<\/p>\n
\"It's still high enough for exporters, and low enough for
\nimporters,\" he said.<\/p>\n
Meanwhile, concerning impacts of the weakening dollar towards
\nIndonesia' foreign currency reserves, Goei suggested that BI
\ndiversify it from dollars to other currencies, such as the 12-
\nnation euro or the Japanese yen.<\/p>\n
\"This is to prevent a further decline of the reserve's value
\nif the dollar continues to drop,\" he said.<\/p>\n
Bank Mandiri chief economist Martin Panggabean however said
\nthat such a policy was not needed, as the composition of foreign
\ncurrencies in the reserves was already of a fair balance. Martin
\ndeclined to elaborate, saying the figures were confidential.<\/p>\n
BI previously said that it would convert its dollar holdings
\nin the reserves -- which accounts to some 95 percent -- into
\nother currencies.<\/p>\n
But Indonesia could well miss out on the trend, as tides start
\nto shift. Monetary officials in Europe, Japan, China, Taiwan and
\nSouth Korea are now considering market interventions to slow down
\nthe dollar's plunge, to prevent it from hurting their exports.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/ri-misses-chance-to-cut-inflation-on-dollar-woes-1447893297",
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"sponsor": "Okusi Associates",
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