BI says pressure on rupiah to be short-lived
The Jakarta Post, Jakarta
Bank Indonesia senior deputy governor Anwar Nasution said on Wednesday that the current weakening of the rupiah would be short-lived.
In a statement aimed at trying to calm nervous financial markets following the deadly bomb attack at the JW Marriott Hotel in Jakarta, Anwar said the central bank now had a better monitoring system and stronger foreign exchange reserves to help defend the rupiah.
"Bank Indonesia is ready to anticipate threats against the rupiah. Nothing to be worried about, we have what it takes to stabilize the rupiah," Anwar told reporters.
"... And our track record in handling similar situations has also been good," he added, referring to the relatively quick recovery of the rupiah following the bomb attack in Bali last year and other negative incidents.
Aside from its convincing international reserves -- currently at around US$34 billion -- Anwar said the optimism was also based on the central bank's ability to quickly gather market information and its tighter supervision of banks, which means that Bank Indonesia could immediately detect speculation activities against the local unit.
The rupiah ended slightly higher on Wednesday at Rp 8,600 per U.S. dollar, after falling by 2.1 percent to 8,665 on Tuesday after the bomb blast. Reports that the central bank was ready to intervene in the market, pushed the rupiah higher to 8,550 before lunch break.
Dealers said that the central bank was not seen making intervention.
But they said that overall sentiment remained weak against the local unit as the bomb incident renewed concern of the difficulties in curbing terrorism and the negative impact on the economy. Investors were also still waiting to see how the government would handle the situation.
In a sign to show its confidence in the economy, the central bank continued to reduce its benchmark rate on Wednesday to 9.07 percent from 9.10 percent the previous week.
The interest rate on the three-month Bank Indonesia SBI promissory notes was also lowered to 9.07 percent from 9.18 percent.
The increase in the value of the rupiah since early this year has been seen as a key factor contributing to the current benign inflation level, which in turn provides greater room for the central bank to continue cutting its interest rates. But the hard-won stability in these macroeconomic indicators was put under threat by Tuesday's blast.
Meanwhile, Bank Buana president Pardi Kendy was also optimistic that the pressure on the rupiah would be short-lived, provided the government immediately takes credible action to solve the bomb attack.
"Hopefully similar occurrences will not happen again. If that's the case, the rupiah will become stable again and it may even move in a range of 8,500 per dollar," Pardi said.
Dradjad Wibowo, an analyst at the Institute for the Development of Economics and Finance (Indef), concurred.
"It is important for Bank Indonesia to keep the rupiah below 8,700 per dollar in the next couple of days, to give positive signals to investors.
"Because once the rupiah hits above that level, I fear it would become uncontrollable," he said.