Indonesian Rupiah Is ‘Too Cheap’, Headed Higher on Growth Outlook – Central Bank Official

Rupiah
FILE PHOTO: Indonesian rupiah banknotes are seen after they were counted at a money changer in Jakarta, Indonesia September 4, 2018. REUTERS/Willy Kurniawan

JAKARTA ⸺ Indonesia’s rupiah currency is “too cheap” against the U.S. dollar and should strengthen on brightening prospects of the country’s economic recovery, a senior Indonesian central bank official said on Tuesday.

The rupiah, down about 3% versus the dollar in 2021 and at around 14,500 currently, was not reflective of its fundamentals and its weakness was attributable to a spillover effect of U.S. fiscal policies, Bank Indonesia’s deputy governor Dody Budi Waluyo told an online economic forum.

“It is our duty at BI to try stabilising the rupiah and steer it toward its fundamental value,” he said.

BI is projecting 4.3% to 5.3% growth in gross domestic product this year after the Southeast Asia’s biggest economy contracted 2.07% last year.

The central bank has vowed to keep its policy loose to support the economy. BI has cut interest rates by a cumulative 150 basis points and pumped more than $50 billion into the financial system to support the pandemic-hit economy.

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Dody said while BI keeps it policies loose to support growth, the central bank will prevent any sharp movements in inflation and the rupiah exchange rate.

An expansive fiscal policy in the United States triggered a rise in its treasury yields and outflows from emerging markets such as Indonesia, he said.

BI will continue to monitor domestic economic conditions before it starts any tightening of loose liquidity measures and key interest rates, Dody said, adding that it will avoid any abrupt moves. 

“We don’t want a premature exit before the economy is growing, which could cause a reversal,” he said, reiterating that BI will take its cue from the country’s inflation rate to decide on the timing of its policy normalisation.

Reporting by Tabita Diela; Writing by Fransiska Nangoy; Editing by Martin Petty and Muralikumar Anantharaman; Reuters

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