Rupiah dip not due to interest rates: BI
Rupiah dip not due to interest rates: BI
JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on
Tuesday the weakening of the rupiah was not caused by declining
domestic interest rates, but rather demand for U.S. dollars.
He said that although nominal interest rates had fallen over
the past few months, real interest rates were still high.
"(The weakening of the rupiah) is not because of the interest
rate drop," Sjahril said on the sidelines of a seminar on the
Year 2000 problem.
The rupiah closed unchanged at Rp 6,980 to the dollar on
Tuesday.
Dealers said the market was bullish on the dollar, but Bank
Indonesia and state banks appeared to intervene every time the
dollar tried to strengthen past the Rp 7,000 level.
The local currency has weakened over the past week, falling
from Rp 6,707 to its current level.
Some traders said declining domestic interest rates and
increasing political uncertainty over the upcoming November
presidential election were the primary factors behind the
weakening of the rupiah.
"I think a weakening of one or two days is a normal thing.
There's also a real need for the U.S. dollar right now," Sjahril
said without elaborating.
Some economists said dollar demand would increase as more
companies reached debt restructuring deals with their foreign
creditors.
"A restructuring deal means companies still have to repay
their foreign debts and some people think the dollar has been
quite cheap lately," said an economist at a securities firm.
Sjahril also dismissed suggestions the rupiah weakened because
of market jitters caused by domestic political developments.
The central bank has allowed its benchmark interest rate to
decline on the back of lower inflation.
The interest rate on Bank Indonesia's one-month SBI promissory
note is now at 14.57 percent, compared to more than 35 percent
earlier this year.
Sjahril said the benchmark interest rate could continue to
fall as long as inflation remained low.
"Inflation in July may still be negative," he said.
The central bank expects the benchmark interest rate to drop
to below 12 percent by the end of this year, which would lead to
a further decline in bank lending rates. A decline in lending
rates would allow the real sector to easier obtain bank
financing.
Bank Indonesia expects inflation this year to be slightly
higher than 6 percent.
The economy has enjoyed deflation for four months in a row
beginning in March.
At the height of the economic crisis last year, the economy
suffered hyperinflation of more than 77 percent.
Bank Indonesia officials earlier said the benchmark interest
rate could fall below 10 percent by the end of this year if
inflation was capped at below 6 percent.
"But this may not be possible," Bank Indonesia's Miranda
Goeltom recently said.
She said inflation could soar in December during the
traditional festive season. (rei/cst)