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.