Rupiah to settle at 2,550-2,600: Lehman

JAKARTA (JP): Lehman Brothers' chief economist on Southeast Asia, Arup Raha, predicted here yesterday that the rupiah would eventually stabilize below 2,600 against the U.S. dollar on the back of sound economic fundamentals.

Raha predicted that the rupiah would not rebound to its previous level of 2,450 (before the July 21 turbulence) but would settle at a fair price of between 2,550 and 2,600.

"Based on current account and capital account reasons, I think the rupiah will settle within that range," Raha added.

Meanwhile, Bank Indonesia governor J. Soedradjad Djiwandono hinted yesterday that the central bank would continue to drain short-term rupiah from the market to discourage further speculations on the currency.

Speaking after the installation of 24 directors at state banks, Soedradjad said the central bank would continue stabilization efforts in its management of the supply of both dollars and rupiah.

"Rupiah and dollar markets are two interdependent markets. If you want to control the situation, you must handle the two. You cannot maintain dollars, but at the same time supply rupiah," Soedradjad said.

Spot rupiah was stable at 2,608/2,612 at yesterday's close, exactly the same as at the previous day's close, a dealer said.

He said there were some dollar purchases from offshore operators in the afternoon, but a tight rupiah market limited the upside.

The central bank yesterday maintained the three-day Bank Indonesia Certificate (SBI) at 14.0 percent, four-to-six day at 15.0 percent, one-week at 10.0 percent, two-week at 10.5 percent, one-month at 11.125 percent, three at 11.0, six at 11.625 and one-year at 12.25 percent.

Soedradjad called on the public to read the current weakening of the rupiah as a regional phenomenon.

He said the U.S. dollar strengthened against the rupiah and all regional currencies, especially the Thai baht, the Philippines peso, the Malaysian ringgit and the Singapore dollar.

Raha told newsmen the recent rupiah volatility was caused by external factors, not by Indonesia's macroeconomic fundamentals.

"Our analysis shows that as far as Indonesia is concerned the rupiah turbulence is not driven by domestic reasons but by purely external reasons," Raha said.

"In other words, the fundamentals of the Indonesian economy are very, very strong," he said.

He said that the weakening rupiah was not caused by the country's economic fundamentals.

"Do you believe something has fundamentally changed in Indonesian economy over the last month or so? The answer is no," Raha said.

Raha said the country's economy was driven by a robust domestic and foreign investment which would eventually increase the production capacity of the economy.

Although non-oil exports were a cause of concern for Indonesia, the overall balance of payments was still healthy and the current account deficit, which stood at 3.5 percent of gross domestic product, was sustainable, he said.

"Lehman Brothers sees the Indonesian economy as fundamentally sound and we are excited about the country's longer-term prospects," Raha said.

Raha said Indonesia's strong fundamentals would prevent the rupiah from devaluation, as happened to the Thai baht and the Philippine peso.

Bank Indonesia has projected that the rupiah will be stable at between 2,555 and 2,610 against the greenback.

Danareksa Securities' chief economist Rino Agung Effendi, who was also at the conference, agreed saying the rupiah would not even touch the upper end level of the central bank's intervention band.

Bank Indonesia widened the dollar-rupiah intervention band on July 11 from eight percent to twelve percent to avert speculative attacks.

The central bank yesterday kept its intervention band at 2,378/2,682 but raised the conversion band to 2,585/2,633 from 2,575/2,623 on the previous day. (aly/rid)

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