Rupiah off to 33-month high, heading for 8,000
Rupiah off to 33-month high, heading for 8,000
Dadan Wijaksana, The Jakarta Post, Jakarta
Bank Indonesia (BI) said on Friday the rupiah could strengthen to
the level of 8,000 per dollar provided there is further
encouraging news from the country's economic activities.
BI senior deputy governor Anwar Nasution said that "If exports
run well, oil prices remain high and a successful IPO (initial
public offering) of Bank Mandiri," the local currency has a good
chances of reaching that level.
Anwar was commenting on the rupiah's strong showing recently
due primarily to a slumping U.S. dollar against most currencies
in the world, coupled with increasing demands for the rupiah from
foreign investors wishing to invest in the country.
On Friday, the local unit rose again to 8,275 per dollar, the
highest level in the past 33 months, in what traders saw as the
latest signs of more capital inflows here.
However, while admitting that a stronger rupiah would help
sustain monetary stability, experts warned that it could also
come at a price, especially when the appreciation takes place
drastically.
StanChart economist Fauzi Ichsan told The Jakarta Post that
the most important thing at the moment was to strike a balance
between the good and the bad impacts of the rupiah's current
rally.
"The good side of it is that we can expect a low rate of
inflation as many of our goods are imported," Fauzi said, adding
that high inflation would erode people's purchasing power.
While people's buying power remains strong, he said, it would
prove beneficial for efforts to maintain the current strong
domestic consumption, the main engine of the country's economic
growth.
Moreover, a benign inflation could mean more leeway for the
central bank to cut its interest rate in an attempt to push
higher bank lending to the corporate sector.
But, the trend also has negative effects.
"Imagine an exporter who paid for imported raw material at Rp
9,000 per dollar four months ago, but then the firm has to
receive payment for the products at an exchange rate of around Rp
8,200 or Rp 8,300.
"For export-oriented businessmen, the drastic change is not
good," he said referring to the fact that most exporters here use
raw materials from overseas.
The stronger rupiah does not only mean less earnings for
exporters, it could also erode the competitiveness of exporters'
in the global market, particularly when compared to exporters
from nations whose currency had not been as strong as the rupiah.
Acknowledging these factors, Anwar said the central bank would
carefully assess the rupiah's rising trend against the U.S.
dollar to find out at what level the trend would still be
tolerable.