Bank Indonesia expects rupiah to keep strengthening against dollar
The Jakarta Post, Jakarta
Bank Indonesia announced on Wednesday it expected the rupiah to continue its recent rally against the U.S. dollar in the second quarter, providing the government maintains positive sentiments, as it did in the first three months of the year.
"The rupiah's upward trend against the dollar will likely continue next quarter," Bank Indonesia Governor Sjahril Sabirin told a media gathering on Wednesday to present the central bank's quarterly reports.
However, he said that a further appreciation of the rupiah would depend on the government's short-term achievement, including the planned sale of Bank Niaga and Bank Internasional Indonesia (BII).
Also seen as crucial would be how the government moves ahead with its privatization program, he added.
The government is expected to complete the Bank Niaga sale in June. Four bidders have been shortlisted.
The local unit has been appreciating since the beginning of this year and reached an eight-month high earlier this week following a host of good news including the debt rescheduling agreement reached by the government and the Paris Club of creditor nations, and the sale of Bank Central Asia (BCA) to a foreign-led consortium.
The rupiah closed slightly lower on Wednesday at Rp 9,470 from Rp 9,450 on Tuesday.
The 2002 state budget assumes an average exchange rate of Rp 9,000 per dollar.
Baradita Katoppo, the president of an independent research firm, IBAS, was of the same view as Bank Indonesia, that the local currency still had a good chance of strengthening against the dollar.
He said the currency could go all the way to a maximum level of Rp 9,300.
"That's where the currency's sustainable level lies," he added.
However, despite the recent strong performance of the rupiah, the central bank would not rush to lower the benchmark interest rate of one-month SBI promissory notes, on remaining worries of the threat of inflation.
Pressure on prices will remain strong for the rest of the year due in part to a government policy of raising energy prices.
The central bank has targeted an inflation rate of between 9 percent and 10 percent this year. But inflation for the first three months of this year has already reached 3.5 percent.
Elsewhere, Sjahril expected the economy to grow by between 3.5 percent and 4 percent in the next quarter, or higher than an estimated 3 percent to 3.5 percent growth in the first quarter, due to the improving investment climate.
Bank Indonesia said that while domestic household consumption would continue to be the main contributor to growth, it is expected to slow as rising prices after the floods in February hurt real per capita income.
"Growth should still mainly come from consumption, but the bank expects private consumption to slow in the second quarter because real income has come down as a result of price increases in the first quarter after the widespread floods," Sjahril said.
The economy grew 3.32 percent in 2001 and this year's budget has forecast growth of four percent, although some recent projections suggest that this forecast is too optimistic.