Sjahril calls rupiah's drop 'normal'

Sjahril calls rupiah's drop 'normal'

The Jakarta Post, Jakarta

The weakening of the rupiah to the U.S. dollar this week is
within a normal range and will not have a negative effect on
inflation or interest rates, Bank Indonesia Governor Sjahril
Sabirin said on Friday.

He said that the rupiah was under pressure because there was
strong dollar demand in the market, including from corporations,
but he was unsure why people were buying dollars.

"But it's still normal," Sjahril told Antara.

The rupiah rose steadily during the first half of this year
amid positive sentiment created by the relatively calmer
political conditions at home and a successful outcome from the
Paris Club sovereign debt restructuring talks. It managed to
strengthen to a nine-month high of about Rp 8,500 to the dollar
last month, making it one of the best performing currencies in
the region.

But during the past three weeks, the rupiah has been under
strong pressure, breaking through the Rp 9,000 level for the
first time in more than a month.

On Friday, the local currency ended at Rp 9,100, slightly
higher than Thursday's close at Rp 9,125.

Traders said the rupiah got help from Bank Indonesia, which
has been intervening in the market lately.

According to Dow Jones, the central bank was believed to have
sold about $40 million on Friday.

Sjahril said Bank Indonesia had been intervening by selling
off dollars, but he declined to give exact figures.

Some analysts, however, said that the rupiah would likely
continue its fall past the Rp 9,500 level. They argued that the
local currency was similar to those of other developing
countries, such as Brazil, whose currency has been under a great
deal of strain over heightened concern of its ability to repay
foreign debts. Indonesia also has large foreign debts amounting
to about $130 billion.

The weakening of the rupiah has created concern that the
country's macroeconomic condition is once again under serious
threat.

The strengthening of the rupiah during the first half of this
year had helped to keep inflation at mild levels and allow the
central bank to continue lowering the domestic interest rate.

These favorable developments in the rupiah, the interest rate
and inflation stirred optimism among government officials that
the macroeconomic condition for the second half of this year
would be in even better shape.