Rupiah may strengthen to 8,000 against dollar: BI

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Friday the rupiah could strengthen to Rp 8,000 against the U.S dollar, provided political stability would endure to help boost market confidence.

He said he expected pressure from political instability to ease, following the relatively peaceful election of the country's fifth president.

"In view of its real exchange rate, the rupiah should be valued at below 8,000 to the dollar... it might reach that level if noneconomic factors have been cleared," he told reporters.

He said the appointments of President Megawati Soekarnoputri and Vice President Hamzah Haz, were a reprieve for the battered rupiah following months of political instability.

Sjahril said he was upbeat about working closer with the next economic team and when asked whether he sought better coordination with the new team, Sjahril said he hoped so.

"At least we have a more stable situation and if this continues and even improves... we may start to lower interest rates," he went on.

The interest rate of Bank Indonesia's one-month promissory notes (SBI) stands at 17.17 percent, which Sjahril has said was high enough.

But he added the central bank would monitor the country's monetary condition for a few more weeks before deciding to lower the SBI rates.

"We cannot simply cut rates, we'll have to observe the monetary indicators," he said, adding: "with inflation rates still high we must be careful in lowering the interest rates."

Year-on-year inflation has been hovering at above 10 percent since March, mainly on the back of a weaker rupiah, coupled with higher fuel and electricity prices.

The state budget has assumed an inflation rate of up to 9.3 percent and a rupiah rate of 9,800 to the U.S dollar.

He said if the market remained optimistic after the recent political events, he was confident Bank Indonesia could meet the monetary targets under the state budget.

The local unit only recently recovered, as the country's political impasse reached its climax without the feared violent repercussions at the grass-roots level.

It closed Friday trading at 10,000 against the U.S dollar, much higher than at 11,148 the week before.

Monday's appointment of President Megawati had sent market players into a two-day euphoria that jerked the rupiah to its four-month high at 9,850 against the greenback.

However, concerns over the line up of the next Cabinet sobered market players into keeping their dollars during the remainder of the week.

Some analysts questioned the rupiah's ability to remain bullish, as corporate demands for the dollar continue to be high.

Also, to meet the average rate of 9,800 to the dollar, the rupiah must strengthen to about 8,400 for the rest of the year. (bkm)