Rupiah to strengthen, keep inflation in check
The Jakarta Post, Jakarta
The central bank expects the rupiah to strengthen against the U.S. dollar leading up to the year-end on the back of a better economic outlook and high hopes for the new government of Susilo Bambang Yudhoyono.
Bank Indonesia deputy governor Aslim Tadjudin said on Friday that the stronger rupiah would help keep inflationary pressure in check at a time when demand for food items and goods is on the rise during the year-end festive period.
"There is a positive perception of the new government that it will be able to boost the economy," he said, adding that the market was now awaiting the announcement of the Cabinet lineup.
"Hopefully the new president will form a Cabinet that is acceptable to the market."
Susilo, to be sworn as president on Oct. 20, has pledged to boost economic growth and stamp out flourishing graft -- all needed to help tackle the problems of chronic unemployment and poverty.
Another factor that would help the local currency to strengthen is the U.S.' whooping trade and budget deficit deficits, he added.
On Thursday, the U.S. government announced its 2004 budget deficit at US$413 billion, a record high -- which would eventually affect the performance of the greenback, Aslim added.
He said both internal and external factors would help keep the pressure off the rupiah, which has fallen by more than 7 percent so far this year.
Last week, Aslim also said the local currency would strengthen to below 9,000 per dollar by the end of the year.
The rupiah closed on Friday at 9,100 a dollar, unchanged from the previous closing.
Aslim added that the stable rupiah would help contain the inflation level in the next three months, during which demand for goods would rise in line with religious festivities -- including the fasting month of Ramadhan, Idul Fitri and Christmas.
"It has to be supported by the government's decisive moves to secure the supply of all goods so as not to put extra pressure on the prices," said Aslim.
Assuming there are no disruptions in supply and distribution of goods, coupled with a relatively stable rupiah, Aslim expects inflation in the last three months of the year will be limited to 2.2 percent.
If it materializes, it would mean that the full-year inflation would stand at 6 percent, lower than the 7 percent target as set out earlier by the government and the central bank.
The Central Statistics Bureau (BPS) reported inflation at 3.8 percent in September.
The country would need a low inflation rate to soften the strain on the central bank in increasing the interest rate on its benchmark promissory notes -- which may otherwise hurt growth prospects as loans for economic activities would become less affordable for businesses.