Bank Indonesia Believes Rupiah Will Not Sharply Depreciated in 2016

Jakarta, 15 Rabiul Akhir 1437/25 January 2016 (MINA) – Bank Indonesia, the central bank, said it feels confident that the rupiah exchange rate will not depreciate sharply throughout 2016 on easing external economic pressures and the positive prospects of continued economic recovery in the country.

Deputy Governor of Bank Indonesia, Perry Warjiyo in its exposure on Indonesian economy here Monday, said external pressures eased and the domestic economy began to recover, making the exchange rate tends to be stable in the first half, and to strengthen in the second half of 2016.

“Domestic economic prospects are good in the first quarter. External pressure will also be more positive,” said Wardijo, at the Standard Chartered Bank Global Research Briefing 2016.

On external pressure, he said, Indonesia has so far been able to anticipate the projected rise in the interest rate of the
Federal Reserve (The Fed). Bank Indonesia said the there will be four-fold increase in the projected The Fed’s interest rate with the accumulated amount at 100 basis points.

The market expects an increase to 50 basis points in March and June 2016. Thus, there have been a projection that external pressure will be smaller,” he said.

Other external pressure comes from the economic slowdown in China. He considered the Central Bank of China (PBoC) will continue to maintain the stability of the yuan in financial markets by not doing excessive devaluation, Mi’raj Islamic News Agency (MINA) quoted Antara News as reporting.

He, however, admitted that there have been still sources of external pressure that could depress the domestic financial market, adding that the structural improvement in the domestic economy will convince investors to plant a stake in Indonesia’s financial markets.

If in 2015, investment in the stock market was sharply eroded, he believes the pressure on the stock portfolio will be
reduced this year due to investor confidence.

“With a lot of stimulus (fiscal spending, monetary easing, accelerating infrastructure), this will become a driving force viewed from fundamental aspects for the increase in stock prices,” he said.

However, Perry declined to mention specific projections regarding the strengthening of the rupiah in the second half of 2016.

“Domestic factors, in terms of inflation, the current account, and the growth will be good, if we look at its prospects
since the beginning of this year,” he said.

In the initial assumption of BI, as well as assumptions that are also contained in the 2016 State Budget, the central bank estimates that the rupiah exchange rate this year at Rp13.900 per US dollar. Meanwhile, BI targeted inflation rate of 4.3 percent, and the assumption of economic growth at 5.2 to 5.6 percent.

On Monday morning, the rupiah was traded on the inter-bank money market in Jakarta, move strengthened slightly by one point to Rp13.844 than a day earlier at Rp13.845 per US dollar. (T/R07/R03 )

Mi’raj Islamic News Agency (MINA)