While the recent strengthening of the rupiah is positive, the central bank says it will remain on alert as it believes the gains are likely to be temporary — a move criticized as being potentially harmful to the rallying rupiah.
"The rally is positive, but it will be temporary," deputy governor of Bank Indonesia (BI) Budi Mulya told reporters on Thursday.
“We will be careful of this global trend, there are many uncertain conditions, we believe this situation will not be permanent,” he said.
The rupiah rose 0.4 percent to Rp 10,388 per US dollar as of 4:19 p.m. in Jakarta, according to Bloomberg.
The currency, which has jumped 9.8 percent over the past month, reached 10,325 earlier on Thursday, its highest level since October.
The rupiah climbed to a six-month high in anticipation of the results of the legislative election, due to be announced May 9, that may bolster President Susilo Bambang Yudhoyono’s chances of re-election later this year.
Bloomberg reported that, besides the rupiah, eight of Asia’s most-used currencies, excluding the Japanese yen, gained on the dollar. Regional shares rallied after the US, Australia and New Zealand all reported better-than-expected job data, adding to signs the global recession
The global economic downturn, which stemmed from a seizure in global markets, prompted investors to favor investments considered safer than emerging-market assets over the past three quarters.
Budi, however, said that BI would not get carried away with the rupiah’s upward trend, and will continue to review the movement of the currency carefully.
“We believe the strengthening of the rupiah is also because the influx of capital in central bank bonds [SBI], government bonds [SUN] and the equity market.”
Currency analyst Farial Anwar criticized the remarks.
"Such a statement should not be made. It is not a positive comment, and may affect the market," he said.
He added that the rupiah was still actually quite weak compared to the 9,300 level per dollar early last year.
"This [the fluctuation] is the result of a free-floating exchange rate. BI should let it fluctuate according to the market," Farial said.
"If the rupiah weakens, importers and those exposed to dollars will be hurt," he added, citing the example of banks that suffered due to derivative transactions when the rupiah tumbled.
Farial said the rupiah strengthened as the global economy had shown a sign of bottoming out, which bolstered optimism that global investors are back investing in high-yield emerging markets. (naf)