Indonesia's central bank says no target level for rupiah

Published Thu, Feb 26, 2015 · 05:46 AM

[JAKARTA] Indonesia's central bank does not have a target level for the rupiah but will always be in the foreign exchange market for measured intervention, a Bank Indonesia official said on Thursday.

The rupiah fell to a 10-week low on Tuesday and is down nearly 4 per cent so far this year, a trend which central bank spokesman Peter Jacobs attributed to the strengthening U.S. dollar and not due to Bank Indonesia's surprise decision last week to cut its benchmark interest rate. "We cannot possibly go against the market," Mr Jacobs said, adding that Bank Indonesia has been intervening only to manage the rupiah's volatility.

Bank Indonesia cut both its benchmark interest rate and its overnight deposit facility rate by 25 basis points last week to 7.50 per cent and 5.50 per cent, respectively.

The policy adjustment could weigh on the rupiah in the near term, analysts said.

After a meeting with the president and Bank Indonesia's governor on Tuesday, Chief Economics Minister Sofyan Djalil told reporters the central bank had not intervened significantly to defend the weakening rupiah. "Why would we use our foreign exchange reserves to defend a falling currency if it was because of external factors?" Mr Djalil said. "Our focus is improving domestic conditions and Bank Indonesia shares the same view." Bank Indonesia's Governor Agus Martowardojo said last week the central bank retained its tight monetary policy despite cutting rates.

The central bank also remains on alert for changes in global financial conditions as the US Federal Reserve prepares to normalize monetary policy, he added.

ING predicts further rate cuts, arguing the central bank's focus has shifted to supporting economic growth from the current account. "We forecast one 25 basis point (bp) cut in 2Q and two 25 bp cuts in 4Q, when we expect inflation to fall sharply due to the November 2014 fuel price hike entering the base of comparison," ING economists said in a note on Thursday.

Southeast Asia's largest economy posted its weakest growth in five years in 2014 as the end of the commodities boom and high interest rates weighed on investment and domestic demand.


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