Rupiah strengthens on profit-taking and expected drop of inflation

ANTARA News , Jakarta, Mon, 11/03/2008

The rupiah strengthened against the US dollar in the Jakarta inter-bank spot market on early Monday, as market players were optimistic that the inflation rate in October expected to be announced soon, tended to drop compared with a month earlier, a money market observer said.

The rupiah rose 225 points to Rp10,750/10,850 per dollar from Rp10,975/10,995 per dollar in the last week-end close.

The rupiah strengthened due to profit-taking by market players, President Director Financ Corpindo Edwin Sinaga said here on Monday.

"We are optimistic that they will continue to release dollars, so the rupiah might strengthen further in the afternoon," he said.

Besides, the market players would also wait whether Bank Indonesia (BI, the central bank), would again raise the BI Key Rate which is currently 9.50 percent.

If the central bank did not raise the key rate, the currently-tight economic growth might get better, he said.

The banking and business sectors also expected BI to refrain from increasing the key rate, especially when the inflation tendency of October 2008 was rather loose, he said.

Central banks in a number of countries tended to cut its key rates to boost the economic growth due to the market tight liquidity, he said.

However, Indonesia is still considered a potential market currently, as foreign investors are expected to invest their capital in the domestic market.

Despite a high balance of the rupiah and dollar interest rate, the Indonesian economy continued to growth although it tended to be lower than a year earlier, he said.