BI sees rupiah settling down at about Rp 9,000

The Jakarta Post, Jakarta

The rupiah is unlikely to strengthen much beyond the Rp 9,000 per U.S. dollar level despite the current weakening of the dollar against many currencies, according to Bank Indonesia Governor Burhanuddin Abdullah.

He explained that the limited room for the local unit to appreciate against the American greenback was due to strong dollar demand at home from the corporate and banking sectors to repay maturing debts and finance imports.

The central bank predicts that the rupiah would settle somewhere around 9,000 to the dollar until the end of the year, and stay there next year.

"The rupiah should have strengthened like other currencies due to the weakening dollar, but a high demand for dollars lately has not allowed it to strengthen as we previously expected," he told reporters on Thursday.

"So unfortunately, or fortunately, the rupiah will stabilize at the Rp 9,000 level in the meantime."

Central bank officials previously estimated that the rupiah could strengthen to below the 9,000 level by the end of the year. A stronger rupiah would help curb inflationary pressures as it would make imported goods cheaper. A milder inflationary environment would, in turn, provide room for the central bank to further cut interest rates.

The U.S. dollar has been weakening against major currencies amid rising concerns over U.S. twin budget and current account deficit problem.

The rupiah ended higher on Thursday at 8,952 per dollar from 8,976 the previous day on improving investor sentiment toward Indonesia and the dollar's global weakness, dealers said.

Dealers said the improving political environment in Indonesia following the formation of the new government under President Susilo Bambang Yudhoyono last month has been attracting capital inflows to the country.

"Underlying sentiment for the rupiah remains positive due to expectations of an improved economy under the new government," said a trader with a state-owned bank as quoted by Dow Jones.