Rupiah drop still under control, says BI chief<\/p>\n
Tony Hotland, Jakarta<\/p>\n
The current depreciation in the rupiah against the U.S. dollar
\nwould not have a severe impact on the economy as it is still
\nmanageable, Bank Indonesia Governor Burhanuddin Abdullah said on
\nThursday.<\/p>\n
He said that the central bank's main policy to help arrest the
\nfall in the rupiah was by absorbing excess liquidity in the
\nbanking sector.<\/p>\n
"Of all the worst scenarios we can think of, the impact will
\nstill be in a corridor that we can handle. No need to worry, it's
\nnot that bad since our condition is better than in 1997\/1998,"
\nsaid Burhanuddin Abdullah, referring to the regional financial
\ncrisis in the late 1990s.<\/p>\n
He was speaking at a meeting with House of Representatives
\nCommission IX on financial affairs to explain the central bank's
\nstrategies to handle the weakening rupiah.<\/p>\n
Burhanuddin said that BI would maximize its efforts to absorb
\nexcessive liquidity in order to minimize space for banks to
\nspeculate against the local unit.<\/p>\n
"We'll do it through the SBI promissory notes auctions, a
\ntighter policy on the minimum bank reserve requirement, and the
\nintervention rate. The important thing is how to keep the
\ninflation rate favorable to our economy," he said, referring to
\nthe Bank Indonesia SBI promissory notes.<\/p>\n
Bank Indonesia has recently introduced a number of measures,
\nincluding increasing the bank reserve requirement to between 6
\npercent and 8 percent in a bid to mop up excess liquidity.<\/p>\n
The rupiah recently dropped to a 26-month low as the looming
\ninterest rate hike in the U.S. triggered a switch to dollar-based
\nassets, while political uncertainty at home in the run up to the
\nJuly 5 presidential election had further dampened sentiment in
\nthe local unit.<\/p>\n
The local currency has slightly strengthened following Bank
\nIndonesia's tightening measures. The local unit closed on
\nThursday at Rp 9,405 per U.S. dollar, relatively unchanged from
\nWednesday's close of Rp 9,400.<\/p>\n
The sharp drop in the rupiah has sparked inflation concerns,
\nparticularly coupled with rising oil prices.<\/p>\n
But Burhanuddin played down such fears, saying that inflation
\nthis year would not surpass the government's target of 6 percent
\nto 7 percent.<\/p>\n
A number of analysts have also suggested that the central bank
\npush the interest rate higher to curb inflation and help defend
\nthe rupiah, a move which has been avoided by the central bank as
\nit would slow down the country's economic growth.<\/p>\n
Central bank officials have said that the bank would not
\nincrease interest rate here if the U.S. Federal Reserve only
\nraise its rate by 25 basis points, as many expected.<\/p>\n
Meanwhile, BI deputy governor Hartadi Sarwono said that the
\ncentral bank was also cooperating with other central banks in the
\nregion, including the ASEAN-plus-three countries (Japan, Korea
\nand China) in a bid to protect the local currencies.<\/p>\n
"We have what we call a bilateral swap arrangement with the
\ncentral banks of those countries. Under the arrangement, there
\nare funds of up to $5 billion that we can periodically borrow.
\nBut in this kind of situation, we don't think we need to go there
\nyet," he explained.<\/p>",
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