Bank Indonesia raised its benchmark interest rate for the second time in two weeks on Wednesday (30/05) and flagged more possible hikes as it escalated a battle to boost the fragile rupiah and contain capital outflows. (ID Photo/David Gita Roza)
Bank Indonesia Says Rupiah Is 'Overshot'
BY :ADINDA NORMALA
MARCH 04, 2018
Jakarta. Bank Indonesia considers a suitable level for the rupiah against the United States dollar within the 13,200 to 13,300 range, a senior official said on Friday (02/03).
"It was actually the right level when trading was at the rate of 13,200-13,300 per US dollar; so if it is now around 13,700, then it is a little overshot," Bank Indonesia Senior Deputy Governor Mirza Adityaswara told reporters.
According to central bank data, the rupiah strengthened to 13,746 on Friday from 13,793 a day earlier.
The last time the rupiah was within the 13,200-13,300 range was in the middle of January, but it started weakening in February to 13,500-13,700, before touching 13,800 – the lowest level since 2016 – on Thursday. This prompted the central bank to intervene.
Mirza said Bank Indonesia did not deliberately allow the rupiah weaken, because since the currency continued to fall, the bank has been in the market to prop it up.
"If [the rupiah] is undervalued, why must Bank Indonesia make it more undervalued?" he said.
However, Mirza said the rupiah cannot be stabilized by the central bank alone and that exporters also need to help strengthen the currency – especially now that global commodity prices are rising – by boosting inflows of US dollars into Indonesia.
"Exporters are starting to sell their products abroad but in the long run, it is necessary to carry out structural reforms, so non-commodity exports can also rise," Mirza said.
Southeast Asia's biggest economy heavily relies on the exports of commodities, such as crude palm oil, which in 2017 made up 14,54 percent of the year's total $132 million non-oil and gas exports.
Reza Priyambada, an analyst at Binaartha Sekuritas, said the value of the rupiah is still declining due to rising expectations of accelerated federal fund rate hikes, following a speech by Jerome Powell, the new chairman of US Federal Reserve.
US President Donald Trump issued a statement on Friday about the imposition of tariffs on aluminum and steel imports, but this may provide room for the rupiah to strengthen.
The currency is expected to move to within the 13,720 to 13,815 range in the following weeks, Reza said.