Sat, 19 Jul 2003

Rupiah weakens, but remains 'within range'

Dadan Wijaksana, The Jakarta Post, Jakarta

The rupiah fell to Rp 8,320 against the U.S. dollar on Friday, the lowest rate since early June as investors cashed in gains from the recent rise in the currency, traders said.

The move was also driven by the strengthening of the dollar against major currencies in the region following positive assessment of the U.S. economy from Federal Reserve Chairman Alan Greenspan.

From January to May, the rupiah rapidly rose against the greenback, mainly due to the global weakening of the dollar against most major currencies. The strengthening of the rupiah helped create a benign inflation environment in the country, which in turn provided opportunity for the central bank to cut down its benchmark interest rate. Together, these developments created a much more stable macroeconomic environment.

Two weeks ago, the rupiah reached its peak of around Rp 8,185 per dollar.

Bank Indonesia Governor Burhanuddin Abdullah said that the central bank was still comfortable with the recent decline in the rupiah.

"It's still within our (target) range," he told reporters, adding that the decline would not hurt the country's overall economic performance this year.

The central bank is targeting the rupiah to hover between Rp 8,500 to Rp 9,000 this year.

"There is no need to worry -- it's a normal market mechanism in which a high expectation of an economic rebound (in the U.S.) is reflected in the stronger currency (dollar). It happens across the region," said Aslim Tadjudin, Bank Indonesia deputy of monetary affairs.

Indeed, during the past couple of weeks, some currencies in the Asian region have been weakening against the U.S. dollar after rising rapidly during the past few months. Some analysts said the move was a sign that central bankers in the region had been worried that the sharp rise in their currencies would eventually hurt exports, particularly as the Chinese yuan -- which is pegged to the dollar -- became relatively weaker against other units.