BI Urged to Keep the Rupiah at Safe Level

The high foreign capital inflow will keep bolstering the rupiah appreciation. Bank Indonesia is expected to allow it to continue to restrict inflation rate. However, this move may not be wise as there are other supporting factors for the surging core inflation. Therefore, the central bank must keep the rupiah at a safe level for the economy.

David Sumual, Economist of Bank Central Asia, said that the rupiah appreciation is yet to influence export and import performances, but in a long run, it can cause a deindustrialization. This is possible as import is dominated by raw materials and capital goods from Chinese markets, while export is led by raw materials and half-finished products. Thus, the government should control import growth as well as diversify export products.

Anggito Abimanyu, an Economist of Gadjah Mada University, said that the rupiah appreciation will not affect export performance. He argues that the government should not limit the capital inflow by imposing taxes as implemented in some countries.
“Capital inflow also strengthens other currencies such as the Singaporean dollar and Chinese yuan,” he said.
Based on the median rate of Bank Indonesia, the rupiah was at Rp 8,686 per U.S dollar on Tuesday and reached Rp 8,628 per U.S dollar on Monday, the following week. On Tuesday, it slightly weakened at Rp 8,656 per U.S dollar.

Iman Sugema, Economist of EC-Think Indonesia, said that Indonesia must be careful in dealing with the high capital inflow since one wrong step will adversely affect the growing economy. Hence, the government should not impose taxes to control capital inflows, as it may create a negative perception from foreign investors.