While acknowledging that weak exports are sapping economic growth, the government says it has no intention of depreciating the currency in the hope of stimulating greater export volume
hile acknowledging that weak exports are sapping economic growth, the government says it has no intention of depreciating the currency in the hope of stimulating greater export volume.
Coordinating Economic Minister Hatta Rajasa said the government would keep the rupiah strong.
“In my opinion, the present value of the rupiah is healthy for the economy. It’s already supporting our exports, so we don’t need to excessively manipulate our currency,” Hatta told reporters after a meeting to discuss strategies to boost the country’s exports and investment in Jakarta on Wednesday.
A stronger rupiah would in fact be good for the economy, Hatta said.
Concerns have emerged over the policies in many countries that are deliberately allowing their currencies to weaken to boost exports, triggering the so-called “currency war”.
Hatta emphasized that Indonesia was not interested in joining the fray.
A meeting of developed G7 economies earlier this week concluded that all countries, in its efforts to thrive in the difficult global environment, should avoid manipulating their currencies.
The group of powerful economies said that disorderly movements in exchange rates “can have adverse implications on economic and financial stability”.
The G7 also reaffirmed its commitment to combating the currency war, saying that its members’ fiscal and monetary policies would focus on “using domestic instruments and will not target exchange rates”.
The G7 comprises Canada, France, Germany, Italy, Japan, the UK and the US.
In the currency war, the US, some European Union (EU) states and Japan are specifically prominent due to their ultra-loose monetary policies, although the countries claimed that their moves were not specifically aimed at weakening their respective currencies.
Meanwhile, the rupiah was Asia’s worst-performing currency in 2012, excluding the Japanese yen, having depreciated 5.9 percent during the year. The rupiah dropped 0.1 percent to 9,660 per US dollar as of 9:03 a.m. in Jakarta on Thursday, according to prices from local banks compiled by Bloomberg.
Despite concerns on the widening current account deficit, the rupiah will reverse its weakening trend this year, analysts say, citing a series of quantitative easing measures implemented by developed nations that will ultimately lead to an appreciation of the rupiah.
Nevertheless, it is believed that Bank Indonesia (BI) is not keen on letting the currency appreciate, preferring instead a weaker rupiah to help languid exports and to shield Indonesia from an influx of strong imports, analysts say.
“With the current account remaining in deficit, BI could still lean toward a weaker rupiah for some time, as it would be one of its strategies to pursuing adjustment in the external balance,” Dian Ayu Yustina and Anton H. Gunawan, economists from privately owned Bank Danamon, wrote in a research note released earlier this week.
In the next few months, the central bank might try to keep the rupiah hovering in the range of Rp 9,600 - Rp 9700 per US dollar, they said.
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