JAKARTA: Ahead of the new year of 2011, we witnessed the ups and downs in the foreign exchange market. US dollar went weaker and pushed rupiah to stay below IDR9,000. This morning dialogue with Nurul Eti Nurbaeti, Head of Treasury Research PT Bank Negara Indonesia Tbk, will give an insight on how the condition at the forex market will be next year.What is BNI's projection for rupiah next year?
We saw this year rupiah has appreciated by 4%, from around IDR9,300 per US dollar at the end of December last year to currently around IDR8,900. Thus, we expect to see the local currency to swing around IDR8,600-IDR9,500 throughout 2011. It is not too optimistic compared to other projections showing that rupiah can run further to IDR8,500 because of the massive capital inflow. According to our research, the government will put exporter's interest on top priority by leaving the comfortable level for rupiah still at IDR9,000. So the range of its movement will not be left too wide.What is the underlying for the rupiah's appreciation?
Fundamentally, the movement of local currency will be supported with solid economy with export and import being the leading contributors to the growth. Also, we are going to see stronger consumption at domestic market. The economy will be challenged with food price hike due to weather issue and limitation on subsidized fuel, leaving the inflation threat likely to be unavoidable. There is also possible threat of imported inflation, which will encourage Bank Indonesia to work harder to manage rupiah not too weak to mitigate the impact of imported inflation to the domestic prices. Still, the inflation will not be a great concern to the fundamental of Indonesian economy. If Indonesia's strive for the investment grade is successful, the foreign investors will come, putting Indonesia as an attractive investment destination. Other factor will be the benchmark interest rate which Bank Indonesia promises to be kept at 6.5% to match with the current situation. Recalling the inflation threat, there is a room for a rate hike if the core inflation touches 5% [now 4.4%]. Yet, BI will consider the wide spread with Fed fund rate to maintain the rate at the range of 6.5%-7.5% in 2011 to secure the competitiveness of Indonesian market in the eyes of foreign investors. Globally, will there be any occurences to be anticipated?
Actually, Indonesia will benefit a lot from the smooth global recovery. The market considers yields at Indonesian market quite tempting and profitable supported with good sovereign risk. The Fed itself has confirmed to manage the rate at 0%-0.25% until second quarter of 2011 following the implementation of US$600 billion quantitative easing policy. If the second QE is successful to boost US economy, it will bring confidence to the market to take risk by entering the emerging markets, like Indonesia, which is defined as 'high risk, high return' market.Yes, at that time, US dollar will strengthen for short term period. Yet, optmisim will bring back risk appetite at the market to take risky portfolios. We will see very small chance for the capital outflow to occur then. Any news from eurozone which shall be anticipated next year?
The concern is still on Portugal and Spain. Considering the size of gross domestic product [GDP], Spain needs to be closely monitored. Eurozone has problems with debt to GDP ratio which is above 80% on average from the threshold of 60% and higher deficit to GDP ratio from 3% at maximum. Borrowing this issue, euro and pound sterling will extend their weaker positions in 2011 unless there are issues from China and beyond to help them experience minor appreciation trend.
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