Rupiah could strengthen further: BI
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Wednesday it was possible for the rupiah to further appreciate to around Rp 6,000 to the U.S. dollar without threatening the country's export competitiveness.
"It is good enough if the rupiah can stabilize at the current level of around Rp 6,500. But it is possible for the rupiah to further strengthen to around Rp 6,000," Sjahril told reporters after a meeting with President B.J. Habibie.
The rupiah strengthened to the Rp 6,500 level on Wednesday in the mid-day trading session but closed lower at Rp 6,715.
He also said that the stronger rupiah would not hurt the country's export competitiveness.
He said that based on the central bank's calculations taking into consideration the real exchange rates of other crisis-hit currencies in the region, exports would remain competitive at an exchange rate of around Rp 6,000 to the dollar.
Sjahril said that the rupiah's strong appreciation reflected declining political risks in investing in the country.
"In the past there was a political uncertainty ahead of the elections. Now the general elections are over," he said.
Indonesia held landmark elections on June 7, which defied earlier expectations and ran peacefully.
The rupiah gained 1.25 percent on Wednesday on Sjahril's comments.
The currency continued its strong rally to close at Rp 6,715 to the dollar on Wednesday, compared to Rp 6,800 the previous day.
Dealers said Sjahril's comments prompted off-shore banks to buy more rupiah.
The central bank's decision to allow the interest rate of its benchmark one-month SBI promissory note to decline further to 20.34 percent on Wednesday from the previous level of 22.50 percent also did not affect the rupiah.
Bank Indonesia has been allowing interest rates to decline without hurting the rupiah on the back of improving economic indicators, particularly inflation.
The International Monetary Fund's Asia Pacific director, Hubert Neiss, called on the central bank on Tuesday to further allow interest rates to decline to fuel an economic recovery.
The rupiah has been on an upward trend over the past couple of weeks following the country's peaceful election process and improving economic conditions.
A positive remark from visiting IMF first deputy managing director Stanley Fischer on the weekend about the country's political and economic conditions encouraged investors, sending the rupiah past the crucial Rp 7,000 level at one point on Tuesday. This was the first time for this to happen since early February 1998.
Dealers expected the rupiah to consolidate over the coming days, but said the sentiment was still there.
Meanwhile, shares dropped 1.4 percent on Wednesday in mixed trade amid selling pressure in some large cap counters.
The Jakarta Stock Exchange composite index slid 10.013 points to 700.669 on trading of 1.880 billion shares valued at Rp 1.281 trillion.
But gainers outnumbered losers 134 against 46.
Shares in state tin mining company Tambang Timah were down Rp 850 to Rp 6,425, while state gold and copper mining firm Aneka Tambang was down Rp 50 to Rp 1,550.
State telecommunications firm Telkom was down Rp 100 to Rp 4,700, and Indosat fell Rp 1,075 to Rp 14,150.
Cigarette giant Gudang Garam fell Rp 275 to Rp 19,925 while Sampoerna was down Rp 1,100 to Rp 18,500.
Indofood suffered heavy selling pressure, sending its stock price on a Rp 975 descent to Rp 10,000.
Dealers said the selling frenzy was caused by a report that the Salim Group, Indofood's owner, would further divest its stake in the company by up to 20 percent. Salim needs the cash to repay debts.
Banking counters including Bank Internasional Indonesia and Bank Bali gained respectively by Rp 25 to close at Rp 250, and Rp 100 to close at Rp 1,600. (rei/prb)