Rupiah may strengthen to 8,000 against dollar: BI

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)