Rupiah fairly valued: Goldman Sachs

Rupiah fairly valued: Goldman Sachs

NEW YORK (Reuter): Despite concerns over political stability
and President Soeharto's health, the Indonesian currency has
adhered to its fair value, Goldman Sachs said in its "Weekly
Analyst" on Tuesday.

According to the Goldman Sachs model, a long-run equilibrium
value for the rupiah is 2,395 per U.S. dollar for the average of
August 1996, compared to the average spot rate of 2,332 per
dollar.

The Indonesian economy in 1995 grew faster than any year since
1991, to which the government responded with tighter
macroeconomic policies to prevent overheating.

Slower exports would lead to marginally wider current account
deficits about 3.9 percent of the GDP in 1996 before retreating
in 1997.

"We do not see a change in Indonesia's policy of steady
depreciation of the rupiah at 4.5 - 5.0 percent, which is
considered consistent with a steady real exchange rate," it says.

Despite political uncertainty economic fundamentals are
improving with slowing inflation and a manageable trade
imbalance. The central bank will therefore attempt to keep
interest rates up in coming months to slow the economy,

"We believe limited pressure on the currency due to political
fall-out is likely to be met with higher interest rates rather
than devaluation," it says

The rupiah is forecast to be at 2,354, 2,372, 2,400 and 2,456
per dollar at one-, three-, six- and 12-month horizon, in line
with the corresponding forwards.