BI vows to prevent rupiah from breaking 10,000 level

JAKARTA (JP): Bank Indonesia will take action to protect the rupiah from breaking through the Rp 10,000 level against the U.S. dollar, the central bank's governor Sjahril Sabirin said here on Tuesday.

"We will either intervene or raise interest rates or employ a combination of both to protect the rupiah," he told reporters after meeting with the House of Representatives' Speaker Akbar Tandjung.

The rupiah is teetering towards the 10,000 level after it dropped last week to its lowest level in two years.

On Tuesday, the rupiah fell to 9,880 from its opening position of 9,845 on dollar demand from local companies.

Analysts have said that the growing need for dollars to repay corporate debts and finance raw material imports would keep the local currency under pressure.

They said the rupiah could easily fall to 10,000 and below.

In response to the weakening rupiah, the central bank is believed to have intervened several times in the money market by selling the American greenback through state banks so as to shore up the ailing local unit.

The interest rates on Bank Indonesia Certificates are also been kept high in a bid to subdue dollar demand.

A recent BI ruling has deprived foreign speculators, whom the central bank blames for the rupiah's past fluctuations, of offshore rupiah supply.

The ruling limits rupiah offshore trading, and BI has said that it has helped to stabilize the currency.

But the opening of a non-delivery forward market (NDF) for rupiah in Singapore last month has challenged the ruling's effectiveness.

Sjahril, however, said the NDF market was at present no threat to the rupiah.

"Up until now there has been no impact (on the rupiah)," he claimed.

Sjahril said that the central bank had no plans yet to anticipate a surge in transaction volumes on the NDF market. "It's too early to say (what action would be taken)," he said.

Since its establishment in Singapore, the NDF market has attracted only a few players.

Banks in Singapore fear that trading the rupiah on the NDF market would prompt BI to take action against their branches in Jakarta.

Sjahril said that BI was studying whether banks here that were involved in the NDF market were violating BI regulations.

"We can't control offshore banks, but if local banks or financial institutions are involved in it (the NDF), then that we can control," he asserted.

However, he fell short of elaborating on his statement, saying only that he needed more time to answer.

At Tuesday's meeting, Sjahril submitted to the House Speaker the names of six candidates to replace BI deputy governors Dono Iskandar and Achwan.

"We will immediately send the curricula vitae of our six candidates to the House," he stated.

Akbar said that a review of the curricula vitae was a prerequisite before the House's selection process could begin.

"Only if their curricula vitae meet our requirements will we consider them (the candidates)," he said.

Akbar further said that the replacement of the two deputy governors was unrelated to the current work of the House in amending Central Bank Law No 23/1999.

The amendment process is a follow-up to the government's failed attempts to reshuffle BI's board of governors on suspicion that some of the governors were involved in the controversial emergency liquidity support loan disbursement scandal.

The current central bank law stipulates that BI's board of governors cannot be removed from office before the end of their terms, unless they have been proven guilty of committing a crime, become incapacitated, or have voluntarily resigned.

But Sjahril reiterated the International Monetary Fund (IMF)'s concerns to Akbar over the House's move to amend the law.

He said the IMF feared that amending the central bank law would reduce BI's independence. (bkm)