BI vows to defend rupiah if necessary
BI vows to defend rupiah if necessary
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
Friday that the central bank would take necessary measures to
defend the rupiah if the local unit weakened due to a delay in
the announcement of the new Cabinet.
Sjahril said that he had instructed the central bank's money
market division to closely monitor movements of the local
currency.
"I can't disclose what measures will be taken by BI, but I
have instructed staff in the (money) market division to intervene
if necessary," Sjahril said.
The rupiah closed higher at Rp 9,500 per U.S. dollar late on
Friday, from Rp 9,640 on Thursday, following the remarks. Dealers
said that state banks had sold dollars on behalf of Bank
Indonesia.
Sjahril said that postponing notification of the Cabinet
lineup had weakened sentiment in the rupiah.
There has been concern in the currency market that the delay
has been caused by heavy political lobbying among major political
parties vying for posts in the Cabinet of President Megawati
Soekarnoputri. This may undermine the capabilities of the new
Cabinet.
Sjahril, however, expected that negative sentiment in the
rupiah would only be temporary.
Sjahril said that the market should realize that the President
may have delayed the decision because she needed more time to
form a credible and strong Cabinet team.
He said that if the market recognized this positive aspect
then the rupiah would strengthen again.
The rupiah soared to a six-month high following the
appointment of Megawati last week.
Megawati was expected to announce her Cabinet on Friday, but
delayed the event until next week.
The recent strengthening of the local unit allowed the central
bank to decrease the interest rate of Bank Indonesia one-month
SBI promissory notes to 17.15 percent on Wednesday, slightly
lower than 17.17 percent in the previous week.
Sjahril was quick to assert that this move should not be
interpreted as a precedent for a continued decline of the
benchmark interest rate in the near future.
He said that the interest rate would only decline if there was
stronger confidence in the market. He did not elaborate any
further.
Bank Indonesia has adopted a tight monetary policy by raising
the benchmark interest rate in a bid to help curb inflationary
pressure and stabilize the local currency.
The Central Bureau of Statistics (BPS) reported earlier this
week that inflation remained high in July, lifting the year-on-
year inflation rate to 13.04 percent.(hbk/bkm)