'Rupiah's surge not good for business'

'Rupiah's surge not good for business'

Dow Jones, Jakarta

A rapid strengthening of the rupiah could hurt the country's exporters, Bank Indonesia Governor Burhanuddin Abdullah said on Monday.

"A too rapid rupiah appreciation is not good for business," he told reporters.

But Burhanuddin said the market should set the rupiah's level, indicating the central bank was not yet considering significant intervention in the foreign exchange markets.

The governor declined to give a rupiah level that he felt would be suitable for exporters.

The rupiah retreated from its intraday peak but remained at a 33-month closing following the statement. The local unit ended at Rp 8,175 per U.S. dollar late on Monday, up from Rp 8,275 on Friday.

The rupiah has been appreciating rapidly during the past couple of months on the back of capital inflows and the dollar's broad weakness against regional currencies, dealers said.

Citibank said in a research note Monday that exporters were likely to complain if the rupiah strengthens beyond Rp 8,000.

Although Indonesian stocks and bonds have risen strongly in recent months, helped by lower interest rates, the real economy is lagging behind, Citibank said. Low investment and falling consumer spending is making it hard for manufacturers.

A strong rupiah also makes it hard for them to compete in export markets against countries that have exchange rates linked to the U.S. dollar such as China. Textiles are an important employment sector for Indonesia, which competes closely with China in low-end manufacturing industries.

The rupiah has been free floating since the 1997-98 Asian crisis, but the central bank manages the local currency through intervention in the market.

Separately, the Indonesian Textile Producers' Association expressed concern on the rapid appreciation of the local unit.

"The rupiah's strength is not competitive and bad for exporters," said Benny Sutrisno, the association's chairman. "The costs in terms of dollars will go up, while our export revenues in rupiah terms will fall."

While acknowledging that the strengthening of the rupiah was good for macroeconomic stability, Bank Indonesia senior deputy governor Anwar Nasution said last week that the central bank would carefully assess the rupiah's rising trend against the U.S. dollar to find out at what level the trend would still be tolerable.