Aditya Suharmoko, Jakarta – External factors are to blame for the recent drop in the stock market and rupiah, with the fundamentals of the economy remaining relatively sound, the central bank has said.
The rupiah has shed 3.1 percent of its value against the dollar this month, as many stock market investors sell their local holdings and convert gains to the dollar, putting further pressure on the rupiah.
The local currency fell 0.7 percent this week to 9,445 per dollar as of Friday, from 9,375 on Sept. 5, according to Bloomberg. Meanwhile, the Jakarta Composite index fell 66.07, or 3.5 percent, to 1,804.06, its lowest since March 28, 2007. It has fallen 11 percent this week, the worst since Aug. 17, 2007.
Despite the troubling figures, Bank Indonesia (BI) governor Boediono said Friday the bank would not make hasty adjustments.
"We will respond to fundamental moves, not to temporary ones. We will not make unnecessary adjustments," Boediono said. "Whether it is about the yield, the exchange rate (of the rupiah against the dollar), we will respond to them in the right rhythm, in a context that will not damage our fundamentals," he added, without elaborating.
The recent declines in the stock market and the rupiah were part of a global adjustment process, Boediono said, adding all countries would have to adjust to slowing world economic growth.
Only those nations with good fundamentals – including sound economic growth, controllable inflation, a healthy state budget, an acceptable rate of debt and favorable political conditions – will remain strong throughout the adjustment process, he explained.
"I think we have all the fundamentals. And if we make the right adjustments, we will become a sound country (economically) in the end," he added.
Indonesia's economy has been performing fairly well thus far this year, despite threats of high inflation and a global economic slowdown.
The Central Statistics Agency (BPS) reported a strong, unexpected 6.4 percent economic growth in the first half of 2008, compared to a slower start in 2007.
The government hopes to achieve a full-year 6.2 percent growth amid worsening global economic turmoil and soaring prices that have impacted the local economy.
The central bank cannot predict how long "the adjustment process" will last, Boediono said, adding the bank would always stand ready to guard the economy and make "policy adjustments", if necessary.