Rupiah's rebound will take time: BI governor

Rupiah's rebound will take time: BI governor

CHIANG MAI, Thailand (Dow Jones): Bank Indonesia Governor
Sjahril Sabirin on Monday called on the government to better
explain why two cabinet ministers were dismissed last month.

In an interview with Dow Jones Newswires, he said the key
factor weighing on the rupiah was the government's late-April
dismissal of the trade and investment ministers, rather than
expectations that the U.S. will raise interest rates.

"It will take some time" before the market can "get rid of all
the questions" raised by the summary dismissals.

"I think what is needed is more explanation about why the two
ministers were removed," he said.

"Certainly, the current (exchange) rate is too weak for the
rupiah right now," he said, predicting that once the political
problem is addressed "the rupiah should strengthen to 7000
(against the dollar) or stronger."

Indonesian rupiah ended lower Monday as local companies bought
dollars to service maturing offshore debt, dealers said.

The dollar ended at Rp 8,023, up from Rp 7,980 late Friday in
Asia.

After having stayed below Rp 8,000 for most of the trading
session, the U.S. unit surged to above that psychologically
important level on late afternoon bids by a local company.

Dealers said that the company, a subsidiary of the Sinar Mas
Group, bought between $35 million and $40 million.

The central banker noted that President Abdurrahman Wahid has
already moved to quash financial market worries that other
ministers would also go, such as the finance or economy
ministers.

Sjahril said his own relationship with the president has
improved, and he has recently attended two cabinet meetings
related to the economy. Early in Wahid's term last year, the
president was putting pressure on Sjahril to step down. "I think
it is quiet now," Sjahril said.

The central banker speculated, however, that Wahid may have
turned down the heat only because the central bank governor
legally can't face political dismissal. "Perhaps what happened is
he didn't really realize there is a new central bank law,"
Sjahril said.

Nevertheless, the central bank governor added that he doesn't
understand why there was pressure in the first place. "I don't
think there was any question about the performance," he said.

The Indonesian central bank governor said market expectations
for a U.S. interest rate hike of as much as 0.5 percentage point
aren't particularly worrying.

"I don't believe it has had any impact on the rupiah because I
think the interest rate margin is enough to absorb that," he
said. Sjahril noted the one-month Indonesian interbank market
rate is around 11 percent.

At the same time, he said Indonesia's high interest rates are
no longer drawing capital as they once did. "The flow of capital
in response to the interest rate differential has already taken
place. Longer-term flows will very much depend on the overall
confidence in the economy," he said.

April inflation figures were better than expected, he said,
adding that his focus on monetary aggregates suggests that core
inflation can be contained at 3.0 percent to 5.0 perent, is
"still attainable."

Consumer price inflation, however, could be lifted by 2.0
percentage points after government decisions to raise official
salaries, some fuel prices and electricity charges.

Sjahril said that he has no information on currency swap
arrangements to be structured among Asian countries, following a
weekend decision to improve regional cooperation among the 10
Association of Southeast Asian nations, Japan, China and South
Korea.

In fact, he acknowledged that one major difficulty in the
agreement is that it was formulated by finance ministers but is
to be implemented by Asian central banks, which are increasingly
getting independence from governments.

He was speaking on the sidelines of the Asian Development Bank
annual meeting, where the swap arrangement was announced.