Sat, 26 Apr 2003

Bank Indonesia says stronger rupiah not a threat to export

The Jakarta Post, Jakarta

Bank Indonesia Governor Sjahril Sabirin said on Friday that the current sharp appreciation in the rupiah against the U.S. dollar would not threaten the competitiveness of the country's export products overseas.

Therefore, the central bank would not try to put a brake on the appreciation trend because a stronger local currency would help Bank Indonesia ensure monetary stability, he explained.

He said that what the central bank wanted to avoid was a sharp fluctuation in the exchange rate.

"I don't think it will hurt exports. So far, there's no complaints from exporters. The current rate is still tolerable," he told reporters.

The rupiah has strengthened sharply during the past couple of weeks, appreciating to a 10-month high of Rp 8,630 per dollar earlier this week. This may create concern among exporters as a much stronger currency would make Indonesia's export products relatively more expensive compared to products coming from other countries whose currencies were weaker or do not appreciate as fast as the rupiah.

Asked at what exchange rate level the appreciation would start to endanger exports, he said: "It varies, depending on the type of export products and the condition of the exporters. But in general, an exchange rate level of around Rp 8,000 is still okay."

The central bank is targeting an average exchange rate of around Rp 9,000 for this year.

The sharp appreciation of the rupiah has allowed Bank Indonesia to further cut its benchmark interest rate, as a stronger rupiah helps lower inflation.

The interest rate on one-month Bank Indonesia SBI promissory notes is currently at around 11.28 percent compared to around 13 percent at the beginning of this year.

The lower interest rate environment is not only expected to push more bank lending to the real sector, but would also help ease the burden of the government in covering the interest rate of huge government bonds.

Currency experts have said that the influx of foreign funds into the country had been the major factor in boosting the exchange rate of the rupiah.

The money coming from overseas had been attracted to invest in both government bonds and local corporate bonds which promise higher returns compared to overseas bonds.

The planned sale of assets under the Indonesian Bank Restructuring Agency (IBRA) has also prompted investors to change their dollars into rupiah to purchase the assets.

At the same time, demand for dollars at home has been low, while other currencies had also been strengthening against the dollar.

Analysts, however, warned that since there was no significant improvement in the country's economic fundamentals yet, the central bank should always be alert as the foreign money could easily run away, thus risking a plunging currency.

The rupiah ended slightly lower Friday as market participants bought dollars ahead of the weekend, dealers said.

The rupiah closed at Rp 8,740 per dollar, down slightly from Thursday's close at Rp 8,730.