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The rupiah will be able to level out at Rp 9,200 against the
U.S. dollar toward the end of the year, the central bank said, on the
country's macroeconomic improvements of late and stronger forex
reserves.
"The rupiah's stability will be supported by a better macroeconomy, the
attractiveness of rupiah-based assets, and the easing of U.S. rates,"
Bank Indonesia (BI) Governor Burhanuddin Abdullah told a hearing Monday
with the House of Representatives' finance commission.
The rupiah has over the course of the year indeed been appreciating
against the American greenback, by 5.46 percent so far, averaging Rp
9,183 per dollar up until the period ending August.
It started this week slipping to Rp 9,127 a dollar, from last Friday's
Rp 9,120 closing, however, as the country's key Jakarta Stock Exchange
tracked falls in other regional bourses by 1.3 percent to end at
1,447.254 points.
The rupiah has been gaining mostly from a capital inflow since the
year's beginning, as global portfolio investors locked in on
Indonesia's capital markets to profit from their high yields.
The central bank had hiked its key BI rate -- which is used as a
reference for bills sales and bank rates -- to 12.75 percent, to
contain inflation that surged to 17 percent.
Inflation has recently slowed down however, clocking in at 14.9 percent
in August, allowing BI to cut rates to 11.25 percent. This, however,
still leaves an attractive spread of 6 percentage points between the
U.S. Federal Reserve's 5.25 percent key rate.
Lower inflation also bodes well for the rupiah's value.
Growth, meanwhile, rebounded to 5.2 percent in 2006's second quarter,
from 4.6 percent in the first, after slowing down for five straight
quarters. The growth was in part supported by stronger exports, which
in turn strengthened Indonesia's reserves and again the rupiah.
Burhanuddin said the country's reserves may remain at US$42 billion
until the end of the year, up from $34.7 billion last year.
"It will stand at $39.5 billion if we decide to pay the second tranche
of debt repayment ahead of schedule to the International Monetary Fund
(IMF)," he said in the hearing, which sought BI's report on the latest
economic developments, for the commission's preliminary deliberation of
the government's 2007 budget draft.
BI had with the government's consent repaid half of Indonesia's
remaining $7.8 billion debt to the IMF earlier this year.
Meanwhile, on growth, BI is estimating Indonesia's economy to expand by
between 5.3 and 6.3 percent in 2007. It still sees growth between 5 and
5.7 percent for this year.
The House is expected to endorse soon a revision of the 2006 state
budget in its next plenary session, lowering growth to 5.8 percent from
its previous 6.2 percent estimate.
Next year's growth will consist of BI's low-end forecast between 5.3
and 5.7 percent, a medium forecast from 5.7 to 6 percent, and high-end
estimate between 6 and 6.3 percent, Burhanuddin said.
Monday's hearing resulted in the commission approving the government's
proposed 6.3 percent growth for next year. Inflation is estimated at
6.5 percent and the central bank's key rate at 8.5 percent.
The draft 2007 state budget will still be deliberated with the House's
Budget Committee, before being endorsed in a plenary session, usually
in October.
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