Indonesia central bank comfortable with weakening rupiah, says helps exports

[JAKARTA] Indonesia's central bank signaled that it is comfortable with the drop in the rupiah as it makes exports more competitive in Southeast Asia's largest economy, a Bank Indonesia senior deputy governor said on Friday.

The rupiah has been trading around 12,800-12,900 against the dollar in the past week, touching a ten-week low on Tuesday. It has weakened almost 4 percent in the year. "We need a competitive exchange rate to support exports of manufactured goods and decrease non-productive imports," Mirza Adityaswara, the deputy governor, told Reuters on Friday. "The current exchange rate is competitive enough because the rupiah has weakened."

Chief Economics Minister Sofyan Djalil said after a meeting with the president and Bank Indonesia's governor on Tuesday that the central bank had not intervened significantly to defend the weak rupiah because both the government and the central bank are focused on improving domestic economic conditions. "Why would we use our foreign exchange reserves to defend a falling currency if it was because of external factors?" Mr Djalil said.

Central bank officials said the weak rupiah is mainly a consequence of a broadly stronger dollar, noting that the rupiah has actually appreciated against several other currencies this year.

Data from Bank for International Settlements showed the real effective exchange rate of the rupiah appreciating since the start of 2014.

Indonesia's exchange rate had a volatile 2014, falling sharply by 4.5 per cent in the second half of the year. It reached a 16-year low in December, trading at 12,930 per dollar.

That helped exports of manufactured goods to rise by 7 per cent in 2014, Adityaswara said. Overall, however, exports contracted 3.4 per cent last year on the back of sliding sales of commodities.

Indonesia's economy posted its weakest growth in five years in 2014 as the end of the commodities boom and high interest rates dented investment and domestic demand.

Analysts said Bank Indonesia's decision to cut its benchmark interest rate by 25 basis points last week could further weigh on the rupiah in the near term.

REUTERS