Friday, October 8, 2010

Bank Indonesia Happy With Rupiah’s Gains, New Measures Not Yet Needed

Novrida Manurung & Rishaad Salamat | October 08, 2010

Jakarta. Bank Indonesia says it has no plans to curb capital inflows and is not worried about the rupiah’s gains, signaling it considers current measures sufficient to cope with funds that are coming into the economy.

The rupiah’s current strength is not a concern “at the moment,” Muliaman Hadad, a central bank deputy governor, said in an interview with Bloomberg Television on Friday.

He added that there were no plans to follow Brazil’s lead to stem gains by increasing taxes on foreign investors.

The Indonesian currency was little changed this week on speculation the central bank would intervene to curb steep gains, which reached a three-year high of 8,900 to the dollar on Sept. 30.

Earlier that month, Bank Indonesia Governor Darmin Nasution said that any purchases of the US currency would be to “prevent the rupiah’s fluctuations from becoming too big.”

Policy makers from Brazil to South Korea have taken steps to cool gains in their currencies as investors pour money into emerging and Asian markets, where growth has outperformed that of most developed nations.

The Jakarta Composite Index has surged 40 percent this year, with steep gains in stocks such as Bank Central Asia and Indofood Sukses Makmur.

Bank Indonesia has kept borrowing costs at a record low, this week again putting off raising interest rates, which could spur more capital inflows into Southeast Asia’s largest economy.

“Strengthening is happening to all currencies in emerging markets,” said Juniman, chief economist at Bank Internasional Indonesia.

“We don’t need to worry about a strengthening rupiah. We see that BI is always in the market and may maintain the rupiah at about 8,900.”

Hadad said the central bank was monitoring the rupiah’s movements “very closely.”

“We’re trying to find a balance, the level that we think is appropriate to support our exports and also to maintain internal stability,” he said.

The nation’s foreign-exchange reserves climbed by $5.2 billion last month to a record $86.55 billion, the biggest increase since April, according to central bank data.

Meanwhile, Brazil this week doubled a tax it charges foreigners investing in fixed-income securities in a bid to stem gains in its real, while Seoul said banks involved in foreign-exchange transactions would face audits.

But Bank Indonesia has no plan to follow suit, Hadad said.

“We don’t think we would like to move from our current direction” of requiring purchasers of central bank notes to hold them for at least 30 days, he said.

The central bank maintained its reference rate at 6.5 percent for a 14th consecutive meeting on Tuesday, keeping the benchmark at the lowest level since its introduction in July 2005.

While BI Deputy Governor Hartadi Sarwono has said using the key rate to curb inflation might also attract funds and boost reserves, the central bank has instead used other measures to encourage investors to keep their money in the country and reduce volatility in capital flows and the currency, including ordering lenders to set aside more cash reserves to reduce money supply.

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