Rupiah weakness is 'incomprehensible': Kwik<\/p>\n
JAKARTA (JP): Coordinating Minister for the Economy, Finance
\nand Industry Kwik Kian Gie said on Monday that the current
\nweakness of the rupiah was \"incomprehensible\" because it
\ncontradicted the improvement in the country's macroeconomic
\nindicators.<\/p>\n
\"Based on the development in macroeconomic indicators, the
\ndrop in the exchange rate of the rupiah is incomprehensible,\"
\nKwik told a media conference following a meeting with senior
\neconomic ministers.<\/p>\n
\"So our conclusion is that the weakness in the rupiah is
\ncaused by psychological factors,\" he added.<\/p>\n
Kwik said the economy had continued to grow in the first
\nquarter of this year, and positive developments were also seen in
\nthe manufacturing sector, consumption, investments and exports.<\/p>\n
But Kwik added that the free-floating exchange rate system
\nadopted by the country since late 1997 had contributed to the
\nfluctuating rupiah.<\/p>\n
He urged people not to be surprised by sharp increases or
\ndrops in the value of the rupiah because the free-floating system
\nallowed the market to fully dictate the currency's exchange rate.<\/p>\n
Kwik also admitted that domestic political uncertainty had
\ncontributed to the rupiah's weakness.<\/p>\n
But he said that he had been informed by the head of the
\nnational intelligence agency (Bakin) that despite the continuing
\npolitical and security \"disturbances\", things were still under
\ncontrol.<\/p>\n
The rupiah has been under pressure over the past month. The
\nlocal currency closed at Rp 8,608 per U.S. dollar on Monday, much
\nlower than the government target of Rp 7,000 per dollar for this
\nyear.<\/p>\n
Separately, Bank Indonesia Governor Sjahril Sabirin said on
\nMonday that the central bank would continue to intervene to prop
\nup the rupiah.<\/p>\n
He said that intervention would include measures to raise the
\ninterest rates of central bank SBI promissory notes.<\/p>\n
\"We are going to intervene in the market,\" Sjahril said before
\nmeeting with the House of Representatives commission IX for
\nfinancial and development planning affairs.<\/p>\n
Interest rates<\/p>\n
Meanwhile, Bank Indonesia deputy governor Miranda Goeltom
\nexpected SBI note interest rates to increase at Wednesday's
\nauctions by \"one or two basis points\".<\/p>\n
Miranda said that if the domestic political situation
\ncontinued to haunt the rupiah, the trend for SBI note interest
\nrates to increase would inevitably continue.<\/p>\n
Miranda said that the rate had increased by some 37.5 basis
\npoints over the past month.<\/p>\n
\"This is a monetary reaction of the central bank to the
\ncurrent (political) situation,\" she told reporters on the
\nsidelines of a hearing session with the House.<\/p>\n
The interest rate on one-month SBI notes rose to 11.3 percent
\nlast Wednesday compared to 11.07 percent earlier.<\/p>\n
Miranda also said that the increases in SBI notes interest
\nrates were not necessarily a reaction to U.S. Federal Reserves
\ninterest rate increases.<\/p>\n
She explained that Bank Indonesia believed that domestic
\ninterest rates did not necessarily follow U.S. rates if political
\ndevelopments at home were positive.<\/p>\n
\"Our interest rates our already the highest in the region,\"
\nshe said.<\/p>\n
Miranda said that the development in the exchange rate of the
\nrupiah was basically influenced by economic risks, financial
\nrisks and country risks.<\/p>\n
She said that in terms of economic risks, there were more
\nupsides than downsides because of the positive macroeconomic
\ndevelopments.<\/p>\n
\"The only thing is the investment problem, which has not shown
\nencouraging signs. I think this is due to political
\ndevelopments,\" she said.<\/p>\n
She said that in terms of financial risks, the country has
\nnearly completed its bank recapitalization program.<\/p>\n
But the problem was that the necessary environment for the
\nbanking sector to fully perform its intermediary function was not
\nyet there, she said.<\/p>\n
She added that the biggest problem was Indonesia's country
\nrisk, which was directly influenced by developments on the
\npolitical front.<\/p>\n
\"So this boils down to one thing, which is the political
\nfactor,\" she said.<\/p>\n
Miranda said that the country's free-floating exchange rate
\nsystem should not be blamed for the weakening of the rupiah.<\/p>\n
She pointed out that other currencies, including the US
\ndollar, German mark and South Korean won, which implemented a
\nfree-floating exchange rate system were relatively stable.<\/p>\n
\"The important thing is how to eliminate the three kinds of
\nrisks, particularly the political problem,\" she said.<\/p>\n
\"And it is also important that the government continues with
\nits economic reform program,\" she added.<\/p>\n
Asked if higher domestic interest rates would threaten the
\ncountry's bank restructuring program as well as the overall
\neconomic recovery, Miranda said that it was possible.<\/p>\n
\"But we'll try to minimize the impact. We're not expecting
\ninterest rates to increase significantly,\" she said. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/rupiah-weakness-is-incomprehensible-kwik-1447893297",
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