Rupiah to strengthen, keep inflation in check

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.