Rupiah stabilizing
Rupiah stabilizing
The rupiah market has remained calm over the past few days
with its rate stabilizing at a range of 2,900-3,000 to the U.S.
dollar. As the turbulence of the regional currency market is also
tapering off it is reasonable to expect firmer stability within
the next few months.
The reform package -- though its technical details are still
being finalized -- has been improving market sentiment and has
been effective in starting the process of regaining investor
confidence.
The latest developments seem to have made the central bank
much more confident about gradually easing the credit pinch, a
move it promised last Wednesday when the government announced a
new package of measures to cope with the currency turmoil.
The gradual easing of the tight monetary policy which started
last Thursday was stepped up on Tuesday when the central bank
again lowered its benchmark interest rates (Bank Indonesia
Certificate rate) by between one and two percentage points.
Though the rates are still high, ranging from 12.75 percent to 21
percent for papers of less than one month maturity and 23 percent
for three-month and 25 percent for one-month papers, the
direction is clear.
It is unreasonable to expect the monetary authorities to lower
interest rates in a drastic manner as the market condition is
still fragile and investors are still waiting for more concrete
and detailed actions under the new reform package.
A Reuters poll of 12 analysts and foreign exchange dealers in
Jakarta and Singapore early this week concluded that the rupiah
rate would most likely move between 2,900 and 3,000 to the dollar
until the end of this year.
Barring another wave of currency turbulence in other Southeast
Asian countries, the 2,900-3,000 range predicted for the rupiah
rate may hold firm. The sooner the rupiah settles at its
equilibrium market rate, the better is for the economy as
businesses will be able to start price adjustments based on that
new market range. Likewise, the government needs a more reliable
rate reference as it has to start preparing its 1998/1999 budget
which has to be proposed to the House of Representatives in the
first week of January.
Despite these encouraging developments, we cannot afford
complacency and think that everything is now back to normal. We
have still to complete our homework as investor confidence has
not fully recovered.
The early process of regaining market confidence could be
suddenly foiled if the government does not deliver what it
promised in the Sept.3 reform package or if the final agenda of
actions resulting from the package is seen as cosmetic.
The government is challenged to maintain the process of
restoring market confidence, especially in the run-up to the
Presidential election next March. It is not that political
stability is in danger. Far from it, Soeharto's reelection has
been ensured. But such a political agenda is usually full of
rumors and is sometimes marred by conflicting signals to the
market.
It is therefore most imperative for the cabinet to come out
soon with the set of concrete measures set forth in the package
and to refrain from giving confusing signals to the market while
the final details of the reform measures are being prepared.