Seeking ‘Balance,’ Bank Indonesia to Keep Rupiah Near 9,000 Vs. Dollar

By webadmin on 10:21 pm Apr 30, 2010
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Dion Bisara & Irvan Tisnabudi

The central bank intends to maintain an exchange rate of about Rp 9,000 to the US dollar in an effort to balance the interests of exporters and importers while maintaining overall economic stability, Bank Indonesia acting governor Darmin Nasution said on Friday.

“We will try to maintain it at a little bit more than 9,000,” he said. “We know that exporters want a weaker exchange rate. On the other hand, importers want it stronger. So we have to maintain the balance between the two and take into account other things such as inflation and economic stability,” Darmin said.

The rupiah is currently hovering near a 33-month high. It has been the strongest performing major Asian currency over the past 12 months, rising 17.4 percent against the dollar.

Fauzi Ichsan, chief economist at PT Standard Chartered Bank Indonesia, said the central bank wanted to protect the non-service sector from the impact of the strengthening rupiah.

“I think BI heard complaints from exporters, because without its intervention the rupiah exchange rate could be well below Rp 9000 [already],” Fauzi said.

One of those exporters, Brata Lukman, the owner of clothing producer and exporter PT Pintu Mas Garmindo, said the strong rupiah had resulted in Rp 2 billion ($222,000) of currency-related losses in 2009 at the Bogor-based company.

Pintu Mas Garmindo was bracing itself for more losses due to the currency this year, he said.

However, Fauzi said the weaker dollar is not all bad news for exporters. “Some exporters, who import raw materials, could benefit from the strengthening rupiah because the raw materials have become cheaper for them to buy,” he said.

Also, the current strength in commodity prices was mitigating the effect of the stronger rupiah for exporters of those types of products, he said.

The Indonesian economy generally experienced its worst times when the rupiah was weak, Fauzi said.

“The strengthening rupiah, all in all, will be good for economic growth. It will also push down inflation,” he said.

While the strong rupiah is hurting exporters, it is also making imported goods cheaper and, as a result, is helping to contain imported inflation.

Textiles trader Bobby Kurniawan, who sells textiles for several factories in Bandung, said many textiles exporters were now importing foreign products, which was now effectively cheaper because of the stronger rupiah, and re-exporting it, a trend accelerated by the influx of cheap Chinese textiles this year.

“With the weakening dollar, and the increased price of raw materials, it’s much cheaper to just buy imported products and then export them,” Bobby said.

Fauzi said Bank Indonesia is also keen to increase its foreign reserves, which have already risen significantly in the past few months due to the inflows of investment into Indonesia.

Bank Indonesia said it had foreign reserves of $77 billion as of April 29, a new record in the country’s history.

“Our foreign reserves are a little bit over $77 billion,” Darmin said. “That was because of inflows. We intervene by buying some dollars and that becomes our foreign reserves.”

With the inflow of money continuing to increase, the country’s foreign reserves could be more than $80 billion by the end of the year, Darmin said.