Dollar-rupiah band widening 'preemptive'

Dollar-rupiah band widening 'preemptive'

TOKYO (Reuter): The widening of the dollar-rupiah band was a
preemptive move, Indonesia's central bank Governor Soedradjad
Djiwandono said here yesterday.

Soedradjad said that with recent regional developments and
currency volatility, widening the band was "an effective measure
to hedge our own reserves, so not to be influenced, so not to be
dictated by the developments of the market".

Indonesia's central bank surprised markets last Friday by
widening the dollar-rupiah band to 12 percent from eight percent
following recent de facto devaluations of the Thai baht and the
Philippine peso.

"We didn't make it free but very flexible but we still have
this kind of band to tell the market this is the kind of area we
more or less tolerate," Soedradjad told Reuters Financial
Television.

Asked if further widenings in the band were possible, he said:
"I am a very pragmatic man. I look to see what is going on in the
market."

He said his position presented many dilemmas -- if he moved
too early he would be accused of nervousness and if he moved too
late he would be criticized for not anticipating events.
"Preemptive is a good word for me," he said.

He said previous widenings of the band had worked well, adding
that the planned listing of the rupiah in a futures contract
launched by FINEX, the financial products division of the New
York Cotton Exchange, was a factor.

He said the rupiah itself was not under attack. Indonesia felt
very comfortable with its $21 billion in reserves -- equivalent
to five and a half months of Indonesian import needs -- and the
central bank had not intervened in the market since 1995.

Soedradjad, who is in Tokyo for a meeting of the Consultative
Group on Indonesia (CGI), a grouping of donor nations led by the
World Bank, said he had met with Bank of Japan Governor Yasuo
Matsushita to explain Indonesian and regional developments.

He said he had told Matsushita, as he had told parliament,
that he felt "fundamentals to be stronger than projected by the
media".

Asked to confirm that even if Southeast Asian currencies
depreciated considerably that it would not lead to a rethink on
Indonesia's own depreciation policy, Soedradjad said, "Yes, I
think so, that's the way I put it."

Policy

Indonesia has a policy of managed depreciation for the rupiah.

He said that Indonesian exports were "not bad considering the
whole situation".

While export growth was not as high as in the past, this was a
problem affecting the whole region and that even given this,
Indonesia had a better growth rate than other developing
countries, he said.

The central bank governor said he expected growth of around
seven to eight percent for the economy, that Indonesia was close
to its inflation target of five percent and that current account
growth should hopefully be sustainable.

Asked if there would be more scope for the central bank to
lower interest rates if inflation came down, Soedradjad said, "I
think so, yes," although he would not specify any levels.

He said that the central bank had often been accused of
keeping interest rates high to promote capital inflows, but added
that argument was unfair.

Demand for liquidity was very high because of active domestic
demand and growth in consumption, he said.

Soedradjad said although Indonesia's savings rate was good it
could be better and "if that is the case, then I believe interest
rates will go down".

Soedradjad also said that Asian central banks had not used
repurchase (repo) agreements to help the Thai central bank
because they were slower than other measures.

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