BI sees rupiah below 9,000 per dollar

Dadan Wijaksana, The Jakarta Post/Jakarta

The central bank remained upbeat on the prospects of the rupiah, reiterating confidence the local unit would strengthen to below 9,000 per U.S. dollar by year-end, according to deputy governor Aslim Tadjudin.

"The rupiah has been relatively stable so far and has tended to strengthen. I predict it will hover at below 9,000 by the end of the year," Aslim told reporters on Friday.

It was the second remark from Bank Indonesia noting an upbeat outlook for the local unit. Bank Indonesia Governor Burhanuddin Abdullah also gave a similar statement a few weeks ago, saying the rupiah could reach 8,800 by year-end.

The statement came amid renewed pressure on the rupiah recently due to soaring oil prices. The local unit has declined by around 7.4 percent against the dollar so far this year.

The rupiah closed flat at 9,090 per dollar on Friday in active trading, as worries over soaring oil prices and security after a bomb explosion at the Indonesian Embassy in Paris were offset by a healthy sentiment from the sale of Bank Permata.

The local currency was under pressure just after news of the attack broke out, down to as low as 9,100, but it retreated back afterwards as the bomb was relatively small, dealers said.

But, Aslim pointed out that the stable macro economy and completion of the nearly year-long elections would eventually help boost sentiment for the rupiah.

The completion of the seven-month long elections has reduced political risks here, helping the government focus on boosting economic growth, he added, citing Fitch's recent decision to raise Indonesia' rating outlook as an example of an improved investor' perspective on the country.

Global rating agency Fitch Ratings raised the nation's rating outlook earlier this week from stable to positive. It last upgraded Indonesia's long-term foreign-currency rating last year by one notch to B+ -- still four levels below investment grade.

The decision would eventually reduce the perceived risk of the agency and investors of investing in the country, enhancing chances of the return of badly-needed foreign investment, Aslim said.

Another sentiment-boosting factor for the local unit should be the near-complete sale of a government majority stake in Bank Permata, the seventh largest lender in the country.

The government has named a consortium led by London-based Standard Chartered as the preferred bidder for a 51 percent stake in the bank -- in a move seen as a sign of a revival of interest from foreign investors in local assets.

The consortium agreed to pay around US$300 million for the stake, above the targeted $250 million.

Elsewhere, Aslim said the central bank would continue to apply a cautious stance on its benchmark interest rate. Despite pressures to increase the interest rate on Bank Indonesia SBI promissory notes, it would still keep it at a level that would not hurt the business sector.

"Our monetary policy is to keep the interest rates conducive for the development of the country's real sector. I think the interest rates will remain neutral until the end of the year, at about the current level," he said.

At present, Bank Indonesia's one-month interest rate stands at 7.40 percent.