Rupiah strengthens to new eight-month high

The Jakarta Post, Jakarta

The rupiah closed higher at Rp 8,960 to the U.S. dollar on Thursday, making it the first time the local currency had crossed the psychologically important boundary of Rp 9,000 since September last year.

Traders said state-owned banks were aggressively selling dollars as the U.S. greenback also lost strength against the yen and other regional currencies.

The dollar was trading late on Thursday at 124.00 yen, down from 124.21 yen late Wednesday, Dow Jones said.

The rupiah was quoted at Rp 9,055 on Wednesday.

Currency analyst Farial Anwar of PT Currency Management Group said that positive sentiment created by progress in the implementation of the country's key economic reform program had continued to drive the rupiah's value up.

"The positive sentiment has prevailed until now," he told The Jakarta Post.

The rupiah has been strengthening since the beginning of the year. The local currency received a major boost after the government completed the sale of its majority stake in the giant retail bank, Bank Central Asia (BCA), in March, and obtained a sovereign debt rescheduling approval from the Paris Club of creditor nations in April.

Farial said that the rupiah would continue to appreciate in the short term.

"The rupiah could still be hovering in the range of Rp 8,800 to Rp 9,000 until the end of June, provided there is no bad news," he said.

A stronger rupiah is crucial to help the country resolve its various economic problems, including curbing inflation, reducing the high interest rate environment and easing pressure on the state budget to cover the interest rate of huge government bonds issued to bailout banks.

The current state budget assumes an average exchange rate of Rp 9,000.

But many analysts said that the local currency was capable of plummeting to the Rp 10,000 level again because of the country's huge foreign debt burden.

Any signs of the government backtracking on its promised economic reform programs, analysts said, could also easily erode the enthusiasm surrounding the rupiah.

Meanwhile, Vice President Hamzah Haz said on Thursday it was most important that there was not a quick appreciation of the local currency, but a stable exchange rate to help provide certainty for businesses and the government.

"What is important for us is to maintain the stability (of the exchange rate)," he told Antara.

He said that the ideal level of the exchange rate of the rupiah was between Rp 8,000 and Rp 9,000.

"If it quickly strengthens to the Rp 8,000 level, we'll be worried because it would make the economy unstable," Hamzah said.

He added that to maintain the current positive sentiment in the rupiah, other economic indicators, such as inflation and exports, had to be improved, and a reform commitment made with the International Monetary Fund (IMF) must be implemented.

Separately, former coordinating minister for the economy Rizal Ramli said the positive sentiment in the rupiah was attributed to the strengthening of other regional currencies against the dollar and the expectation of dollar inflow from the sale of state assets.

He added that the relatively stable political condition under President Megawati Soekarnoputri was also a significant factor.

But he warned against becoming overconfident with the rupiah because there had been no significant change in the fundamental condition of the economy, with its sluggish export performance and lower-than-expected first quarter economic growth.