BI to continue to supply dollars to help ailing rupiah
JAKARTA (JP): Bank Indonesia plans a fresh intervention to protect the rupiah from the expected surge in the demand for U.S. dollars at the year-end, deputy governor Miranda Goeltom said on Wednesday.
Miranda said that the measure was also aimed at helping contain the stronger inflationary pressure, which traditionally occurs during the year-end.
"We will continue to supply dollars to the market to help ease pressure against the rupiah," she told a press conference following a critical closed-door meeting between leaders of the House of Representatives and the members of Bank Indonesia's board of governors, which was also attended by Governor Sjahril Sabirin.
It was Sjahril's first meeting with the legislature after his recent release from the custody of the Attorney General's Office over alleged involvement in last year's high profile Bank Bali scandal.
Miranda said that the intervention measure would be maintained to help the central bank meet its monetary target.
But she also said that maintaining a credible level of foreign exchange reserves was equally important to provide confidence in the economy.
She said that the foreign exchange reserves at Bank Indonesia were still at a healthy level of more than US$28.6 billion.
The rupiah has been under strong pressure over the past few months. The local unit ended at Rp 9,450 per U.S. dollar late on Wednesday, slightly higher than Rp 9,510 on Tuesday. But the rupiah was still more than 25 percent below levels early this year.
Dealers said that the prospect of Bank Indonesia intervening in the market had helped strengthen the local unit during the day.
Miranda declined to disclose the year-end target level for the rupiah.
But she said that the current level of the rupiah was still very much undervalued.
Miranda said that the rupiah has been weakening lately due to various factors including higher demand for dollars from corporations to repay foreign debt and to finance greater imports at the year-end, as well as domestic political factors.
Coordinating minister for the economy Rizal Ramli had instructed state-owned companies that need to repay foreign debts to get dollars from the central bank. The move was aimed at reducing demand for dollars in the open market, thus relieving pressure on the rupiah from foreign debt repayment.
Miranda said that if the rupiah continued to weaken, it would further create inflationary pressure because of the relatively high import content of domestic production activities.
She said that the year-end festivities had also created inflationary pressure.
She said that the central bank would also continue to absorb excess liquidity through the Bank Indonesia SBI promissory notes to help ease the inflationary pressure.
Bank Indonesia initially forecast inflation this year to be within the 5-7 percent range, but the higher inflationary pressure at the year-end forced the central bank to revise its 2000 inflation target to 9-10 percent.
The weighted-average interest rate of the one-month SBI notes continued to increase to 14.42 percent on Wednesday at the weekly auction compared to 14.32 percent previously.
Meanwhile, House Speaker Akbar Tandjung urged Bank Indonesia board of governors to focus its attention on stabilizing the ailing rupiah and curbing inflation.
He also supported the current board of governors in taking any crucial policy decisions although five of the eight members of the board had recently tendered their resignation.
He said that any policy implemented by the board would be "valid" until the replacements for those who had resigned had been installed.
Akbar also called on President Abdurrahman Wahid to agree to meet Sjahril to help ease pressure on the rupiah.
Since returning to Bank Indonesia, after five months of detention, Sjahril has failed to meet the President, who has long insisted Sjahril step down as part of a major reshuffling at the central bank.
Sjahril has refused to resign. The President has said that the case against Sjahril would soon be brought to court.
The government has proposed a bill to the parliament to amend the central bank law, which when once approved would remove the legal obstacle to oust Sjahril.
The House is currently in a month-long recess period ending in the middle of January next year. The House special team would resume debating the proposed bill after the recess ends.
Factions at the House agreed Wednesday to allow the special team to continue discussing the proposed bill during the recess period but only for five days, and they would not be allowed to take any decision. (rei)