Rupiah 'still has leeway' to advance to 6,000 level

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Friday that he was upbeat that the rupiah would still be able to advance to a level between 6,000 and 6,500 against the U.S. dollar, despite the currency's retreat in the last two days.

The central bank chief said he believed a stronger rupiah would not hurt the competitiveness of the country's exports and said it would instead cut exporters's expenditure on imported-raw materials.

"(Although) it is difficult to estimate an ideal level for the rupiah-dollar rate, I believe the currency will still be able to appreciate to 6,000 or 6,500," he told journalists following a meeting of the government's economic resilience council at the State Guest House.

The central bank governor said the rupiah was still undervalued.

His remarks follow a controversial statement made by Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita on Wednesday.

Ginandjar said the rupiah's ideal level against the dollar should be between 7,000 and 8,000 to maintain competitiveness of the country's exports.

Sjahril said that a stronger rupiah would result in a significant reduction in expenditure on imported raw materials, which would in turn lower their overall production costs.

"At a level of between Rp 6,000 and Rp 6,500, exporters will be able to buy raw materials at cheaper prices," he said.

The rupiah, which hit an eight month high of 7,150 against the dollar on Wednesday, continued falling on Friday to close at 7,850. The fall has been partially attributed to the market's negative reaction to Ginandjar's statement.

"I think market sentiment on the rupiah is still negative so people will tend to buy more dollars from the market," a chief dealer with a local private bank said.

Dealers said that like other regional currencies, the rupiah also dropped as a result of a weakening in the Japanese yen against the dollar. The yen closed lower at 119.12 against the U.S. dollar after trading in Tokyo on Friday.

Money market analysts said that dollar selling by state banks in morning and afternoon trading prevented the rupiah from breaking through the 8,000 level.

"If there was no dollar selling by state banks, the rupiah might have broken through the 8,000 level," another dealer said.

Bank Indonesia director Achyar Iljas said separately on Friday that the government would not intervene in the market to prop up the rupiah against the dollar.

But Sjahril admitted on Friday that the central bank had sold dollars over the past few days to buttress the rupiah's position.

"One day we sold $1 million, the next day about $5 million and once we sold $20 million," he said.

Although the central bank remains optimistic about prospects for the rupiah, most currency dealers said that the outlook would be more bearish in the days ahead.

They said prospects for the rupiah would remain bleak in the run-up to the special session of the People's Consultative Assembly (MPR), which is scheduled for Nov. 10 to Nov. 13 this year.

Like the rupiah, share prices in the Jakarta stock Exchange (JSX) fell 1 percent on Friday, with the main price gauge dropping 3.38 points to 313.45 on a total turnover of 167.84 million shares valued at Rp 233.16 billion.

Head of research at Mashill Jaya Securities Edhi S. Widjojo said the rupiah's decline had forced most investors to sell stocks of corporations with large debts denominated in foreign currencies.

"With a declining rupiah, companies will face greater difficulty servicing their debts ... so investors will be inclined to sell," he said. (prb/aly)