Rupiah will recover as worst is over: central bank

The Jakarta Post ,  Jakarta   |  Tue, 08/28/2007 1:43 PM  |  Business

Urip Hudiono, The Jakarta Post, Jakarta

The worst may be over for Indonesia's markets, in particular for the rupiah, which had been battered by the recent storm in global markets triggered by the U.S. subprime credit crunch, with the central bank expecting the economy to sustain little damage overall.

Bank Indonesia sees the rupiah strengthening to around Rp 9,000 to the U.S. dollar ahead as the country's foreign exchange reserves still amount to more than US$50 billion.

The central bank also sees Indonesia's economy growing at between 6.2 percent and the government's 6.8 percent estimate next year.

""Our latest assessment shows that the situation (in the global markets) is under control again. Our economy and the rupiah has recovered -- the same goes for our stock and bond markets,"" BI governor Burhanuddin Abdullah said after a meeting Monday with President Susilo Bambang Yudhoyono to discuss the recent turbulence.

""We consider that a rupiah worth some Rp 9,000 per dollar is best for our economy. We'll remain in the market to keep volatility in check.""

Burhanuddin said that with a stable rupiah, 6.5 percent inflation for this year was within reach.

Separately, BI Deputy Governor Aslim Tadjuddin told a hearing with the House of Representatives that the central bank expected the rupiah to average between Rp 9,000 and Rp 9,300 per dollar next year.

In the draft 2008 budget, the government has predicted a rupiah exchange rate of Rp 9,100 per dollar.

Aslim said that Indonesia's forex reserves currently stood at US$51.3 billion, representing a decrease of $600 million from $51.9 billion at the end of July.

""The reserves were used for market interventions to reduce the volatility of the rupiah, and for the usual foreign debt repayments,"" he said.

Later, however, Aslim said that reserves stood at $51.7 billion as of Aug. 24.

Markets worldwide caught the jitters in the early part of this month due to problems in the U.S. subprime mortgage market, resulting in the rupiah taking a hit as well as investors dumped their holdings in emerging markets.

The global financial markets finally showed signs of calming down after the U.S. Federal Reserve cut its discount rate for banks last week to maintain liquidity in the market.

The Fed and the European Central Bank had previously pumped billions of dollars so as to help the banking sector avoid an even worse credit crunch.

Burhanuddin claimed that the recent global market turmoil had had little impact on Indonesia's financial markets and economy.

""What happened was that investors adjusted their portfolios in line with the situation,"" he said.

Despite BI's optimism, however, the rupiah closed down 0.3 percent at Rp 9,380 Monday. By contrast, the Jakarta Stock Exchange Composite Index rose by 32.24 points to 2,175.35.

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