T

he current value of the rupiah could help boost the competitiveness of manufacturing exports, a top Bank Indonesia (BI) official said on Friday.

According to BI senior deputy governor Mirza Adityaswara, one of the key drivers of exports should ideally be the exchange rate and the rupiah was currently undervalued.

'€œIf we want to push the manufacturing sector, it [exchange rate] should be undervalued, not by much, but only slightly,'€ he said in a discussion held by the alumni of the University of Indonesia'€™s School Of Economics.

He added that the rupiah was slightly undervalued, and was competitive enough for exports, taking into consideration the currency'€™s real effective exchange rate (REER).

The International Monetary Fund (IMF) defines the REER as the nominal effective exchange rate '€”which is a measure of the value of a currency against a weighted average of several foreign currencies '€” divided by a price deflator.

An increase in the REER index means that exports become more expensive and imports become cheaper. Therefore, an increase indicates a loss in trade competitiveness.

Monthly data from the Bank for International Settlements (BIS), whose membership comprises 60 central banks, show that the rupiah'€™s REER ranged between 84.68 and 91.42 throughout 2015, below the fair value of 100.

For instance, the REER stood at 89.78 in December. With such a REER index, the rupiah should theoretically have been traded at 12,378 per US dollar, instead of 13,795 per US dollar, as revealed by BI'€™s Jakarta Interbank Spot Dollar Rate (JISDOR).

BI expects the REER to hover between 95 and 97 this year to enable the currency to support exports. However, Mirza reiterated the need to shift export focus to manufacturing from commodities due to low commodity prices.

Commodity-related goods have continued to account for a major portion of total exports in 2015, such as fat and animal or vegetable oil, pulp and tin.

The government has also repeatedly called for a shift in exports to cope with falling commodity prices. Finance Minister Bambang Brodjonegoro has previously suggested that businesses develop derivative products from commodities to increase their export value.

Separately, Bank Central Asia (BCA) chief economist David Sumual and Samuel Asset Management economist Lana Soelistianingsih agreed that an export shift to manufacturing was a clamant need to revive the economy.

However, despite BI'€™s claim of a competitive rupiah, Indonesian Exporters Association (GPEI) secretary general Toto Dirgantoro said the weaker currency had not necessarily worked in favor of exporters.

'€œWe still import many of the components from overseas and the weaker rupiah makes them more expensive. That adds costs and actually reduces the competitiveness of our exports,'€ he said over the phone.

Meanwhile, London-based financial services firm Ebury Partners Ltd. was quoted by Bloomberg as saying that the rupiah had been more undervalued than most of its peers and should be fairly stable in 2016.

Ebury '€” which was the most accurate rupiah forecaster in the third and fourth quarters, according to Bloomberg rankings '€” has forecast that the currency will end the year at 13,800 per US dollar, 0.3 percent stronger than the spot rate of 13,838 per dollar as of 10:43 a.m. in Jakarta on Friday.

That is more bullish than the 14,592 median estimate in a Bloomberg survey of 30 analysts.

Bloomberg also reported that the rupiah had actually outperformed every major currency since Sept. 30.

It strengthened 5.6 percent through Thursday, a percentage point more than the Malaysian ringgit, which is the next best performer among 31 major counterparts.

According to Bloomberg, BI'€™s hawkish stance '€” maintaining interest rates last year and waiting for inflation to drop before cutting in January '€” won the confidence of overseas investors, who pumped almost US$4 billion into rupiah sovereign debt in four months.