BI Governor Says Rupiah Undervalue, BI is Confident it is Stable and Strengthening

JAKARTA - Bank Indonesia Governor Perry Warjiyo said the current rupiah exchange rate is below its fair value or undervalued. However, BI believes that the rupiah will be stable and tend to strengthen because Indonesia's economic fundamentals are still strong.

Perry conveyed this after attending a meeting with the President at the Presidential Palace Complex, Jakarta, Tuesday, May 5.

"The exchange rate is now undervalued. In the future, we believe it will be stable and strengthen," said Perry.

According to Perry, this belief is supported by a number of indicators. Economic growth is said to have reached 5.61 percent, low inflation, high credit growth, and strong foreign exchange reserves. "Our fundamentals are strong," he said.

Perry explained that the pressure on the rupiah in the short term mainly came from global and seasonal factors. From a global perspective, the pressure comes from high oil prices, the rise in US interest rates, the US Treasury 10-year yield reaching 4.47 percent, and the strengthening of the US dollar.

In addition, there was a capital flight from emerging markets, including Indonesia.

On a seasonal basis, Perry said that demand for dollars usually increases in April, May, and June. The needs include repatriation of dividends, debt payments, and Hajj requirements.

Even so, Perry emphasized that BI's position had not changed. The rupiah was considered too cheap compared to Indonesia's economic fundamentals.

"But the rupiah is undervalued and in the future it will be stable and tend to strengthen," said Perry.