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Rupiah still conducive for business despite depreciation, says BI

Bank Indonesia (BI) considers that the current rupiah exchange rate will remain conducive for businesses, even though the currency has shown sharp volatility in the past few days

Tassia Sipahutar (The Jakarta Post)
Jakarta
Sat, June 21, 2014

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Rupiah still conducive for business despite depreciation, says BI

B

ank Indonesia (BI) considers that the current rupiah exchange rate will remain conducive for businesses, even though the currency has shown sharp volatility in the past few days.

Several companies are also vigilant about the rupiah'€™s volatility potentially increasing both their and their customers'€™ exposure to currency risks.

The central bank, however, expects the condition of the rupiah to return to '€œnormal'€ after the second quarter of this year as pressure from seasonal factors subside, according to BI Governor Agus Martowardojo.

'€œIn the middle of the year, we usually see a higher need for foreign currencies, caused by dividend repatriation and the repayment of overseas loans,'€ he said on Friday.

Combined with the latest trade balance statistics and domestic political scene, the sentiment then turned negative for the rupiah, he added.

The statistics show that Indonesia posted US$1.96 billion in trade balance deficit in April, after posting a $670 million in surplus just a month before. BI attributed the deficit to the rising demand for food approaching the fasting month and Idul Fitri.

'€œWe'€™ve also noticed sharp competition between presidential candidates on the political scene. This has an effect on the exchange rate as well,'€ he said.

As previously reported, the rupiah hit 12,000 per US dollar for the first time in four months on Wednesday. The currency weakened 1.5 percent this week to close at 11,972 per dollar, the biggest weekly decline in a month, Bloomberg reported.

Meanwhile, BI'€™s own Jakarta Interbank Spot Dollar Rate (JISDOR) revealed that the rupiah stood at 11,967 on Friday.

The rupiah has lost about 2.7 percent of its value this month, and is the worst performing currency in Asia.

Agus said the currency would hopefully strengthen in the second half of the year, following the end of the presidential election.

'€œWe are also expecting to see a trade surplus in May that will positively impact the rupiah,'€ he added.

Separately, Kimia Farma president director Rusdi Rosman acknowledged that the rapid movement of the currency had affected the calculation of its costs of goods sold.

As of now, the state-owned pharmaceutical manufacturer imports 95 percent of its raw materials.

'€œIf it continues like now, the effect will be significant for us. However, our export segment has enabled us to minimize the volatility effect because we receive payments in foreign currencies,'€ he said when contacted on the telephone.

The firm has also begun to look for raw material sources that offer the most '€œcompetitive'€ pricing and the company is now in talks with several lenders to discuss the possible uses of hedging tools to push down the risks of forex loss.

Unlike Kimia Farma, Indosat president director Alexander Rusli said that the ups-and-downs of the rupiah had little direct effect on its business as most of its dollar-denominated liabilities were long-term ones, due to mature in 2020.

'€œWhat gets our attention is the effect of forex volatility on our corporate customers,'€ he added.

According to Alexander, 20 percent of the firm'€™s revenues are currently generated from corporate customers.

'€œWe are worried that they may be affected by the macroeconomic situation, including the weakening rupiah,'€ he said.

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