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Rupiah still weak, but manageable, says BI
Bank Indonesia (BI) has asked the business sector not to overact to the fall in the rupiah against the US dollar, saying that the depreciation of the currency is still manageable
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ank Indonesia (BI) has asked the business sector not to overact to the fall in the rupiah against the US dollar, saying that the depreciation of the currency is still manageable.
Dody Budi Waluyo, BI executive director for monetary policy, said on Wednesday that businesses should not be overanxious over the rupiah's downswing as the central bank would intervene whenever it needed in order to stabilize the currency.
'What we want to ask right now is that, please, do not expect the rupiah to continue to depreciate, depreciate and depreciate again, as there's no fundamental basis for our rupiah to be that weak,' he said on Wednesday in a seminar in Jakarta.
The excessive concerns about the rupiah's depreciation have caused importers to frontload their greenback purchases, because they fear that the currency will weaken further in the future.
'This has caused an imbalance of supply and demand in the foreign exchange market,' Dody noted.
His statements came after the rupiah, which strengthened slightly after the surprising announcement of a trade surplus this week, declined again on Wednesday as local companies boosted their dollar purchases for year-end debt payments.
The currency depreciated by 0.6 percent to trade at Rp 11,960 per US dollar as of 4.46 p.m. in Jakarta, according to Bloomberg. Non-deliverable forwards (NDF), an offshore rupiah rate compiled by banks in Singapore, hit Rp 12,076 against the greenback during the day, its weakest level since March 2009.
The rupiah has fallen by more than 22 percent year-to-date, among Asia's worst-performing currencies.
Dody noted that such a decline was far steeper than was warranted, as depreciation of 8 percent would have been more appropriate given the price-inflation differential, that is the gap between Indonesia's inflation (9 percent) and average global inflation (1 percent). The combination of Indonesia's current-account deficit, negative sentiment regarding the possible tapering of US quantitative easing, speculative attacks and expected depreciation had all contributed to the rupiah's weakness, he said.
Managing expected currency depreciation is also important to prevent the rupiah from heading into a vicious circle of depreciation.
'We increased the interest rate this month also to manage expectations, both on inflation and the currency,' Dody stated. 'Once [the rupiah dollar rate] passes 15,000 as in 1998; or 13,000 as in 2008, the cost will be heavy for the economy.'
Analysts have agreed that the rupiah's depreciation is unlikely to develop into a tailspin, as it is a normal trend occurring every year due to high year-end dollar demand, with the currency poised to stabilize again in the beginning of 2014.
'The demand for dollars may be high now, but it should be manageable as this is a normal trend that occurs in the second and fourth quarters every year,' said Ali Setiawan, the managing director and head of global markets with the Indonesian branch of HSBC Bank.
'Compared to June, I'm actually more comfortable with the forex liquidity now ' we see that the market has been more open and interbank transactions have been more active,' he said, predicting the rupiah would stabilize again at 11,500 to 12,000 per US dollar in the upcoming months.
