Robust rupiah pierces important 9,000 level, closes at 16-month high

Urip Hudiono, The Jakarta Post, Jakarta

The rupiah continued to strengthen Tuesday, reaching a 16-month high as easing inflation and a stable interest rate outlook boosted investor confidence in the country's economy.

It ended 0.03 percent up at Rp 9,005 a dollar, from Monday's Rp 9,030 closing, its highest level since December 2004. For the first time since November 2004, it also rose above the important 9,000 level by reaching Rp 8,978 during morning trading.

The currency's latest gains -- making it the best performer in the region -- followed positive economic developments, with year-on-year inflation in March easing to 15.74 percent from 17.92 percent in February, the Central Statistics Agency reported Monday.

The central bank, meanwhile, will likely maintain its current tight-biased policy for its reference rate at least until the first half of this year, Bank Indonesia (BI) Governor Burhanuddin Abdullah said Tuesday.

Both have helped investors remain upbeat in continuing portfolio investments in the local capital market, securing further capital inflows needed to support the rupiah.

Investor confidence in the country's bond market has been emboldened, with slowing inflation helping preserve the price of bonds and the value of their fixed payments. Higher rates help keep the rupiah-based assets more attractive compared to assets in other currencies.

The local stock market reacted positively to the situation, although the Jakarta Stock Exchange Index closed 0.22 percent lower at 1326.45 on profit taking after recent increases.

The rupiah's great gains against the American greenback -- 9.3 percent over the year -- has made it the region's best performer, according to Bloomberg business wire. It has been helped by the particularly high rate difference of more than 8 percentage points between the BI Rate and the U.S. Federal Reserve's reference rate, which has encouraged overseas investors to continue purchasing local debt assets.

BI has kept its BI Rate unchanged at 12.75 percent since December, while the Fed Rate was raised to 4.75 percent last week.

Despite the gains, Burhanuddin said efforts were needed to ensure the rupiah became more stable.

"The rupiah only broke 9,000 for a few minutes; what we have to see is if it can stabilize around 9,000 to the dollar... The more stable the rupiah, the better for the economy," he said.

Exporters in the country, complaining the rupiah's strong gains have started to hurt their business plans and competitiveness overseas, have asked the government and BI to stabilize the currency at about 9,500 to the dollar.
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