JAKARTA: Indonesia’s central bank deputy governor said that the country’s economic fundamentals are “sound” and government is trying its best to keep the progress on right track as
central bank was continued to intervene in the currency market to bring the rupiah at a level stronger than 12,300 against the US dollar.
Bank Indonesia would prefer to keep the rupiah at between 11,900 and 12,300 against the US dollar. As long as it exceeds 12,300, we will intervene, he said and added that without saying how much dollars the central bank has spent to prop up the rupiah.
The rupiah plunged by 2.3 percent against the dollar so far this week, bringing its decline to as much as 4.3 percent this year. It closed at 12,720 to the dollar on Wednesday, according to Bank Indonesia’s rate. The rupiah closed on Tuesday at 12,900 to the dollar, reaching levels Reuters said were at their lowest since 1998.
Mirza noted that the volatility is expected to be temporary in nature, adding that Indonesia’s foreign exchange reserves – which stood at $111 billion at the end of November – is still enough to cover around six months of imports and the government’s overseas debt.
The senior deputy governor attributed the rupiah’s decline to several factors that have recently stirred the global economy — including the improving US economy and the strength of its dollar and Russia’s sudden increase in its benchmark interest rate to 17 percent from 10.5 percent this week.
Investors are also currently waiting for the US Federal Reserve’s upcoming meeting that will provide a hint as to whether the US central bank will raise its key rate, Mirza said.
Such factors have triggered to a sudden capital outflow in Indonesia’s financial market, with roughly Rp 17 trillion ($1.3 billion) of funds taken out from Dec.1 to Dec. 16, according to the senior deputy governor.
He urged the government to take notice to certain reform efforts — such as boosting exports and improving the country’s tourism industry — in order to trim the country’s current account deficit, thus lowering the risks of a massive capital inflow from Indonesia.
Hariyadi Sukamdani, the new chairman at the Indonesian Employers Association (Apindo), said that authorities should guard the rupiah and prevent it from weakening to more than 13,000 per dollar.
“I believe, based on our economic fundamentals, that the exchange rate should be less than 12,000 per dollar. At the current rate, or if it gets worse, there will be more companies suffering rather than those who gain,” said Hariyadi, who is also president director of Hotel Sahid Jaya International, one of the first local hotel chains in Indonesia.
Hariyadi said even export-oriented companies cannot benefit from a weaker rupiah, as they would have to cope with higher production costs — coming from higher utilities expenses, higher wages, higher fuel costs and higher interest rates.
“They may get a little more, additional revenue from the falling rupiah, but it’s not much compared to higher costs of production they have to bear. Meanwhile, companies importing raw materials will suffer more as they now have to spend more due to the falling rupiah.”
