BI Rate lowering triggers rupiah to weaken

BI Rate lowering triggers rupiah to weaken

Rupiah. (ANTARA/Ismar Patrizki)

Jakarta (ANTARA News) - The central bank`s decision to lower the BI Rate to 5.75 percent triggered a weakening of the Rupiah exchange rate to 48 points to the US dollars on the Friday market opening.

The Rupiah exchange rate in Jakarta interbank`s transaction fell 48 points to Rp8,988 to the US dollar, where previously it had been Rp8,940 per US dollar.

Monex Investindo Futures analyst Ariston Tjendra said here on Friday that the Rupiah weakened after Bank Indonesia lowered the BI Rate, along with a decline in inflation, in an attempt to support national growth amid the worsening global economy.

"The Central Bank`s governor, Darmin Nasution, previously said on Thursday (Feb 9) that Bank Indonesia has lowered its rate by 25 base points to 5.75 percent from six percent," he said.

Along with the Philippines and Thailand, Indonesia lowered its interest rate in January 2012, while the Bank of Korea had to refrain from raising interest rates following the weakening of global demand.

"BI`s vision is still "dovish", a statement that suggests that inflation will have a minimal impact, so they are trying to make the largest reduction in inflation in recent months by pushing interest rates lower.

However, this aggressive trimming might be judged negatively by investors on the projections of electricity and fuel prices, which will soon rise in April," he said.

An analyst from Bank Himpunan Saudara, Rully Nova, said that the BI Rate lowering resulted in the yields for the Rupiah exchange rate to weaken because the domestic currency deviation remains less solid towards The Fed`s interest at 0.25 percent, so investors tend to purchase US dollars.

He added that that the lower the BI rate was driven, the country's inflation tends to decrease along with the continuous growth of the domestic economy.

"However, BI is still maintaining the Rupiah`s volatility against foreign currencies. The current exchange rate in the range of Rp8.900 is still quite stable," he said.