BI to supply dollars to aid rupiah

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Tuesday that the central bank would continue to supply U.S. dollars to the market in a bid to help stabilize the ailing rupiah.

"We'll see the condition of the market. If it's necessary we will supply dollars to the market," Sjahril told reporters at his office.

The rupiah fell to a fresh low of more than Rp 9,575 per U.S. dollar at the end of last year, which was more than a 27 percent drop compared to the level earlier in the year.

The rupiah had been under strong pressure due to a combination of domestic political instability and external factors. But experts have said that strong dollar demand at the year-end including that from the corporate sector to finance overseas debt had contributed to the fall in the rupiah.

The strong dollar demand to repay foreign debt is expected to continue which will put pressure on the local unit.

The rupiah strengthened on Tuesday at Rp 9,440 per dollar. The local financial market had been closed for a week for the year-end holidays.

Dealers said that state-owned banks on behalf of the central bank were seen selling dollars in a very thin post-holiday market.

Sjahril declined to give a projection for the exchange rate of the rupiah.

"I can't give any projection right now. But we at Bank Indonesia will always make efforts to make the rupiah more stable," Sjahril said.

"The rupiah slightly strengthened today (yesterday). But we'll still have to see whether it will continue (to appreciate) ... So it's difficult to make a projection," he added.

The government has targeted the exchange rate of the rupiah to be at an average rate of Rp 7,800 per dollar this year.

Sjahril said that domestic political conditions would continue to affect the exchange rate of the rupiah.

"According to our guys at the dealing room, the amendment of the central bank law is also one factor being closely watched (by investors)," he said, pointing out that if the amendment was merely designed to force him out of the central bank it would greatly affect confidence in the local economy and the currency.

The House of Representatives is in the process of debating a government proposed bill on the amendment of the central bank law which would allow the parliament to dismiss members of the central bank board of governors even before their term expires.

There has been criticism that the amendment of the central bank law was mainly aimed at ousting Sjahril from Bank Indonesia. President Abdurrahman Wahid has long demanded the dismissal of Sjahril as part of a major reshuffle of the troubled central bank.

Asked if the explosion of bombs at some churches in the country during Christmas eve would cause serious trouble to the rupiah, Sjahril said: "I don't know yet how big the impact will be."

The explosions, which killed 17 people, have been seen as another sign of political instability which would cause anxiety among investors.

Asked about the trend of the Bank Indonesia benchmark interest rate, Sjahril said that the interest rate of the Bank Indonesia one-month SBI promissory notes would not necessarily increase even though currency in circulation jumped in the run up to the year-end holidays.

Bank Indonesia is scheduled to hold its weekly auction of the SBI notes today (Wednesday). The interest rate of the one-month SBI notes had increased to 14.4 percent last week.

Sjahril said that the excess amount of cash in the domestic banking system would not necessarily prompt the central bank to absorb it via the SBI auction because the banks could also directly return the excess back to their accounts at the central bank.

He said that many banks had withdrawn cash from the central bank during the year-end holidays in anticipation of a strong cash demand from the public.

Meanwhile, Bank Indonesia said in a press statement that any bank owned by a business group must make its shareholding structure more transparent.

The central bank said that the new measure was part of efforts to increase the level of supervision over the banking industry.

Bank Indonesia said that domestic banks would be required to take emergency measures in case a bank needed more fresh cash.

The central bank added that the appointment of independent directors and commissioners would also be necessary. (rei)