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Bank Indonesia confident in rupiah as Fed hike looms
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Bank Indonesia (BI) says inflation, CAD at safe level
(Kompas.com/-)
B
ank Indonesia (BI) is not overly concerned about the rupiah despite its latest volatility, which stems from a possible rate hike by the US Federal Reserve.
“We’re confident. There’s nothing to worry about with the rupiah,” BI senior deputy governor Mirza Adityaswara told The Jakarta Post in an interview on Thursday.
Mirza dismissed concerns over the rupiah’s recent downward trend, claiming that it was only temporary.
“Such weakening always happens before the FOMC [Federal Open Market Committee] meeting. Well, to be precise, dollar strengthening always occurs approaching the meeting.”
The Fed is gearing up for its next meeting on June 14 to 15 and most Fed officials have said that a second rate increase is likely in June if the US economy stays on course. Chair of the Fed board of governors Janet Yellen remains tight-lipped on the subject.
The rate hike possibility has sent the rupiah, along with other emerging market currencies, to its lowest point since early February. It touched 13,638 per US dollar on Tuesday, before picking up strength to end at 13,585 against the greenback on Thursday.
However, when compared to the anxiety over the Fed’s first rate hike in 2015, Mirza said that the current anticipation was “much more bearable”.
Back then, the rupiah even sank to a level of 14,693 per dollar before the Fed finally delivered the first hike in December 2015.
“Now our key macroeconomics indicators remain in check, with low inflation and current account deficit [CAD]. It’s true that the economy grew slower than expected in the first quarter, but I think the market’s expectations were just too high,” Mirza said.
Financial statistics show that inflation reached 3.6 percent year-onyear in April, while the CAD stood at 2.1 percent GDP in the first quarter. Experts also share BI’s optimism. Bank Mandiri financial market analyst Reny Eka Putri attributed the latest volatility purely to external factors, pointing to the similar fate of other emerging market currencies.
She said Fitch Ratings’ decision to maintain Indonesia’s investment grade rating helped break the rupiah’s fall, as well as a recent hedging agreement signed by major state companies.
Kenta Institute senior economist Eric Sugandi and Bank Central Asia (BCA) chief economist David Sumual were of the same view that the weakening rupiah was only a seasonal trend.
“I think the rupiah movement is simply in line with those of other emerging markets and the news about the Fed,” David said over the phone.
Eric said that he believed pressure on the rupiah would ease in June and July, paving the way for the currency to return to its fundamental value of 12,800 to 13,300 per US dollar.
“The Fed will remain influential in the markets, but its [rate hike] effect will not be as significant as the first one,” he said.
