Thu, 27 Apr 2000

Central bank says time ripe to sell U.S. dollars

JAKARTA (JP): Bank Indonesia (BI) deputy governor Miranda Gultom said on Wednesday that the central bank was ready and in a good position to sell its U.S. dollars in a bid to help ease pressure on the rupiah.

Miranda said the central bank now had a relatively ample amount in its foreign exchange reserves to intervene in the currency market.

She pointed out that the central bank's net international reserves were about US$18.3 billion, which was much higher than the minimum $15.2 billion adjustment target set by the International Monetary Fund (IMF).

"Now is the right time to sell our U.S. dollars," she told reporters during a weekly gathering.

Separately, Bank Indonesia Governor Sjahril Sabirin said earlier on Wednesday that the central bank would intervene in the currency market to help the ailing rupiah by selling its dollars.

The rupiah continued to weaken on Wednesday amid renewed political jitters sparked by the dismissal of two senior economics ministers on Monday by President Abdurrahman Wahid.

The local unit closed at Rp 8,020 to the U.S. dollar, the lowest level in six months, compared to Rp 7,935 during the previous day.

But Miranda stressed that the primary goal of the central bank's market intervention was not to support the exchange rate.

"Our main target is inflation, not the exchange rate ... We have to be consistent," she said, but she added that the indirect effect of supplying more dollars on the market would help ease pressure on the rupiah.

She said the main objective of selling dollars was to limit the disposal of Bank Indonesia promissory notes (SBIs) in order to minimize the cost of interest charges to the central bank.

The promissory note is one of the central bank's instruments used to adjust the domestic liquidity condition, which also indirectly affects the exchange rate of the rupiah.

She added that part of the central bank's huge foreign exchange reserves was generated by the windfall from oil prices received by the government.

Miranda remained optimistic that the central bank's inflation and gross domestic product (GDP) targets were still within reach despite the current weakening of the rupiah.

"We're not worried (by the weakening of the currency), but we're alert," she said.

She saw the weakening of the rupiah as only a temporary phenomenon, as indicated by the strong demand on promissory notes at the regular Wednesday auction.

She said that the central bank auctioned Rp 26 trillion in one-month promissory notes, well above its initial target of 21.5 trillion on Wednesday.

"This means that the market still believes that the current weakness is temporary," she said.

"If the (weakening of the rupiah) is seen as permanent, people will not spend their rupiah to buy SBIs, but will use it to speculate on the foreign exchange market," she said.

The interest rate on one-month promissory notes fell slightly to 10.88 percent from 10.92 percent last week.

Miranda was also optimistic that the rupiah would get stronger once all the "negatives" were eliminated.

She said that Standard & Poor's rating agency was expected to "soon" revise the credit rating of Indonesia's long-term foreign currency issuer which was recently downgraded to selective default.

Miranda said the problems with the IMF caused by the delays in the implementation of the economic reform programs were settled.

In fact, visiting IMF acting managing director Stanley Fischer gave a positive note of confidence on the progress of the government's reform programs early this week.

Miranda hoped President Abdurrahman would be able to ease the political jitters created by the dismissal of two ministers on Monday. (rei)