"Chances are that it will appreciate further (to below Rp8,900) but we can`t predict when as it depends on the conditions of our economic fundamentals," BI Deputy Governor Budi Mulya said here Wednesday.
He said the rupiah would continue to strengthen on the back of the country`s economic fundamentals that are inviting a steady inflow of foreign funds into rupiah portfolios.
"But we need to watch the speed of the rupiah`s appreciation because if it happens too quickly, the resulting volatility could be dangerous," he said.
He said the foreign funds inflow in 2011 would be greater than in 2010 because there was still uncertainty about the economic recovery of the United States and Europe while economic growth in Asia was beginning to be bugged by inflation.
"According to BI`s projections, inflation in 2011 will surpass the target figure, and this is why BI has raised its benchmark interest rate in conjunction with a strategy adjusted to the upward trend in the rupiah`s exchange rate to create a positive effect in anticipation of an expected rise in inflation," Budi said.
To keep the incoming liquidity under control in maintaining monetary stability, BI would this week auction "term deposits" for a six-month term to absorb funds held by banks.
"Liquidity must be kept under control by issuing SBI (Bank Indonesia Certificates) or term deposits. We will see which is the more effective way by channeling the foreign funds into long-term instruments," he said.
Further down the road, BI would issue SBIs or term deposits for a nine-month term while the issuance of SBIs for a 12-month term still needed to be discussed with the government, the BI official said. (*)
Editor: Kunto Wibisono
Copyright © ANTARA 2011
