The rupiah reached its highest level against the U.S. dollar in almost a year Thursday, closing at Rp 8,740, as overseas investors retained their appetites for local stocks and bonds.
Statements from the Finance Ministry and the central bank to the effect that the rupiah remained within a comfortable range despite the surge also helped further propel the local unit against the greenback.
Dealers said that the statements eased concern among currency traders that the central bank would act to stymie the rupiah's rise so as to prevent Indonesian goods from becoming more costly overseas.
Finance Minister Sri Mulyani Indrawati said the government was comfortable with the rupiah's current level, adding that its rise should help slow inflation and boost economic growth through more consumption and higher investment.
Mulyani's remarks came after Bank Indonesia Governor Burhanuddin Abdullah said the central bank would remain content with the rupiah as long as the exchange rate stayed at a "comfortable level for exporters and importers" of between Rp 8,500 and 9,500 to the dollar.
The rupiah has become one of the world's biggest gainers this year, having risen by nearly 3 percent against the dollar over the course of the month to date. The currency hit another high of Rp 8,740 to the dollar Thursday, the highest level since May 15, 2006, and up from Rp 8,817 the previous day.
"The central bank is not going to be in the market in a big way," said Vishnu Varathan, an economist at Forecast Singapore Ltd., a research company specializing in currencies and economics. "There are still a lot of foreign funds chasing Indonesian assets," he was quoted as saying by Bloomberg
The rupiah could gain as much as 10 percent over the next three months, Varathan said, and was already up 3.1 percent in the last five trading sessions, including Thursday, the best performance among the 15 most-actively traded Asia-Pacific currencies.
Separately, BI Deputy Governor Aslim Tadjuddin said Thursday that foreign exchange reserves had risen to a record of about $51 billion, close to the bank's target for the end of the year.
The bank said in March that it expected reserves to total $51.1 billion by Dec. 31, versus $42.6 billion at the end of 2006.
Meanwhile, Standard Chartered Plc recommended that investors buy the rupiah based on its belief that the central bank would allow the currency to strengthen.
"There appears to have been a change in the foreign-exchange stance by the Indonesian authorities," wrote Standard Chartered currency strategists, led by Callum Henderson in Singapore, in a research report Thursday.
Standard Chartered recommended that investors buy the rupiah using non-deliverable forwards, agreements in which assets are bought and sold at current prices for future delivery, Bloomberg reported.
They should exit the trade when the currency reached 8,500 on the spot market.
However, the rupiah is still less than a quarter of what it was worth prior to the Asian financial crisis that started in 1997, when the rupiah plunged to about 17,000 to the dollar.
"The rupiah is still recovering from weakness over the last 10 years," said David Mann, senior currency strategist at Standard Chartered in Hong Kong, in an interview with Bloomberg on Thursday. "There's room to reach the peaks it had prior to the Asian crisis."
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