May 18 16:45

Bank Indonesia denies planning to apply foreign exchange control policy

Denpasar, Bali (Antara News) - Bank Indonesia (BI - central bank) Governor Burhanuddin Abdullah on Thursday denied rumours that the central bank would apply a foreign exchange control policy to prevent the rupiah from weakening.

"That is something impossible. Truly, we never even dreamt of doing that," he told reporters following a seminar here.

The rupiah`s slide in morning trading on Thursday to Rp9,250 from Rp9.100 at Wednesday`s close was temporary because of sentiments over reports of high inflation in the United States, he said.

If the central bank wanted to apply a foreign exchange control policy, it must first change the foreign exchange system in accordance with Law No. 24/1999 on foreign exchange traffic and the rupiah`s exchange rate, he said.

The law was enacted at the request of the people so the central bank needed to discuss its amendment with the House of Representatives (DPR), he said.

"It is impossible to do that in the near future." he said.

He said Bank Indonesia had no plan to change the country`s foreign exchange system.

The rupiah weakened in the morning trading on Thursday mainly because of external factors, he said referring to the report on the US macro economic performance which put year-on-year inflation at 3.5 percent and month-to-month inflation at 0.6 percent.

The figures exceeded the previous forecasts and made market players certain of another Fed fund rate hike, he said.

"The market expectation of another interest rate hike has strengthened the US dollar. Even some have predicted that in the long run, the benchmark Fed funds rate target will be 6 percent or 6.5 percent instead of 5.25 percent," he said.

The rate now stands at 5 percent.

The envisaged change in interest rate target would no doubt narrow the discrepancy between the Fed funds rate and the BI Rate, causing the rupiah to weaken, he said. (*)
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