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Indonesia pledges to halt decline of rupiah

Publication Date : 11-01-2013

 

The Bank Indonesia (BI) has vowed to bring the exchange rate of rupiah against the US dollar within the government’s target despite the sharp depreciation of the Indonesian currency in recent weeks.

Speaking to reporters in Jakarta yesterday, Bank Indonesia Governor Darmin Nasution said that the central bank would closely monitor the movement of the rupiah in next few weeks to ensure that the rupiah returned to the ideal level.

“We are monitoring every minute to decide when we’ll intervene. Like we had done previously when the [rupiah] dropped significantly, we’d fix it slowly,” he said, adding that an intervention would be carried out when it was necessary.

Worries over the widening of the country’s current account deficit as a result of the country’s trade balance deficit has partly contributed to the fall of the rupiah to far below the government’s target of 9,300 rupiah per US dollar this year.

The decline in exports last year, particularly in commodity goods due to the slowdown in the global economy, caused a deficit in the country’s trade balance last year. The trade balance deficit could not be halted as imports also showed a significant increase.

The rupiah weakened by 5.91 per cent to 9,638 per dollar during the period of January to December 2012, according to BI.

The central bank said that depreciation pressure mainly occurred in the second and third quarter of 2012, related to the worsening global economy, particularly in Europe. On the domestic side, pressures on the rupiah came from a high demand for foreign exchange on imports amid declining exports.

The rupiah showed strength in the fourth quarter of 2012, in line with the increase of capital inflows, both directly and through the stock exchange and bond market, the bank said.

Foreign reserves stood at US$112.78 billion at the end of December last year, increasing from $111.28 billion in November.

However, the rupiah was again under selling pressure in the last several weeks. The Indonesian currency forwards dropped 0.8 per cent to 9,950 per dollar as of 4:21pm, Thursday, the lowest level since Sept. 15, 2009, according to Bloomberg. The level was a 2.9 per cent discount to the spot rate, which was unchanged at 9,660 after touching a three year low of 9,880 earlier, according to prices from local banks compiled by Bloomberg.

The Jakarta Composite Index also fell, by 1.04 per cent to 4,317.37 on Thursday compared to a day earlier, leaving year-to-date growth at only 0.02 per cent, figures from the bourse showed.

“BI maintained its presence in the market though intervention size remains limited, indicating that tolerance over the weak rupiah still persists. At this time, we think that BI could possibly increase the deposit facility rate to dampen the mounting pressure on the rupiah,” Bank Danamon economist Dian Ayu Yustina said in a note.

 

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