Rupiah strengthens to new eight-month high

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.