Indonesia’s central bank will let foreign exchange reserves decline in order to prevent the rupiah from falling below 10,000 per dollar this year, the president director of PT Bank Central Asia (BBCA) said.
Jahja Setiaatmadja, leader of the nation’s biggest bank by market value, said he’s confident Bank Indonesia will be able to keep the rupiah below 10,000. The currency must stay below that “psychological level” if the central bank wants to avoid a panic in the market, he said in an interview yesterday.
“If Bank Indonesia doesn’t have the guts to pour the market with dollars, the rupiah can get out of control,” Setiaatmadja said.
Southeast Asia’s biggest economy is grappling with a widening trade deficit that has dragged the rupiah to a three- year low in January, contributing to faster inflation. A weaker rupiah and rising inflation are pressuring Bank Indonesia to tighten its monetary policy after more than a year of record-low interest rates, prompting Setiaatmadja to predict a slowdown in lending at his bank.
Bank Indonesia’s foreign-exchange reserves fell $7.6 billion in the first two months of 2013 to a two-year low of $105.2 billion with the rupiah losing 6.2 percent over the past year, the worst performer among Asia’s major currencies after India’s rupee and the Japanese yen.
“If BI continues to intervene heavily, the $100 billion threshold will likely be breached in April or May,” Hak Bin Chua, an economist at Bank of America Merrill Lynch, wrote in an April 2 report, referring to Bank Indonesia by its acronym. Still, “BI may be reluctant to deplete its FX reserves further for fear of undermining confidence.”
The nation’s economy expanded 6.1 percent in the last quarter, the slowest pace in more than two years, as exports fell amid a decline in global commodity prices. With investment inflows boosting imports, the nation’s trade deficit widened to a more-than-expected $327.4 million in February, sustaining demand for the dollar.
Imports may continue to rise as consumer demand from Indonesia has lured companies including Toyota Motor Corp. (7203) to boost investment in the country. Bank Indonesia has kept its benchmark interest rate at 5.75 percent for 13 straight months to support growth amid a slowdown in the global economy.
The number of middle class and affluent Indonesians may double to 141 million in 2020, according to a March 6 report by Boston Consulting Group. Toyota, the world’s largest automaker, said in November it would build a new engine factory in Indonesia to more than double capacity.
Bank Central Asia’s net income rose 8.3 percent last year to 11.7 trillion rupiah ($1.2 billion) bolstered by a 49 percent jump in mortgage lending. Home loans by commercial banks as of January rose 16 percent from a year ago to 213.13 trillion rupiah, according to Bank Indonesia data.
While demand for borrowing looked strong in the first quarter, Bank Central Asia’s loan growth may slow to 18 percent to 20 percent this year from 27 percent in 2012, Setiaatmadja said yesterday.
Mortgage lending growth at the bank may slow to 20 percent to 30 percent this year as the property market consolidates, Setiaatmadja said. He plans to focus on mortgages in big cities, including Jakarta and Surabaya where demand for repossessed houses in a downturn is likely to be high.
“We don’t set a high target for mortgages because of the uncertainties,” he said. “If the likelihood is for interest rates to rise, demand for mortgages will decline.”
Setiaatmadja expects corporate lending to consumer-staples related industries such as food, cigarettes and retailers to maintain growth.
The bank’s shares rose 0.5 percent to 10,900 rupiah in Jakarta as of 2:14 p.m., bringing its gain this year to 20 percent.
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