Appreciation of rupiah probably temporary: UBS

Appreciation of rupiah probably temporary: UBS

SINGAPORE (Reuter): The Indonesian rupiah's appreciation
against the dollar following the central bank's decision to widen
its intervention band is likely to be short-lived, UBS Singapore
said in a commentary yesterday.

Bank Indonesia announced on Thursday that it was expanding the
dollar-rupiah band to 118 rupiah or five percent to increase the
effectiveness of monetary control in the face of continued short-
term capital inflows.

The central bank, which intervenes in forex markets if the
exchange rate goes outside the band, previously permitted the
dollar to trade in a 66 rupiah band of 2,336/2,402.

The country's high interest rates have attracted heavy capital
inflows, pushing the rupiah to the higher end of its trading
range against the dollar in recent weeks.

UBS said year-on-year broad money growth reached some 28
percent in March, well above the year-end target of 17 percent.

While the central bank move will cause the rupiah to
appreciate and hurt export competitiveness in the short term, UBS
said the bank's policy of gradual mid-rate depreciation was
likely to remain unchanged.

It said the widening of the band had raised the dollar-rupiah
mid-rate by only five rupiah to 2,374.

"We expect the mid-rate to rise by approximately 5.5 percent
over 1996, to about dollar/rupiah 2,345," UBS said.

The move to widen the rupiah's trading range corresponds to
long-term policy goals of transferring risk to the market while
allowing the authorities more leeway in formulating domestic
policy, it said.

Given Indonesia's persistent current account imbalances, UBS
said, the country needed to reconcile the two goals of supporting
non-oil exports and tackling money supply and credit growth.

The rupiah, which touched a high of 2,320.0 to the dollar
after the announcement, had somewhat consolidated its gains by
yesterday. It was quoted at around 2,323.50/24.50 in late
afternoon trade from an opening 2,326.0/29.0.