BI to supply dollars to aid rupiah

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)