Central Bank Warns Of Potential Currency War

Jakarta (Antara Bali) - Bank Indonesia warned of potential currency war as a result of the U.S. central bank's plan of periodical adjustment of its  benchmark interest rate.

"I foresee in the coming three years there would always be currency war because if the  US interest rate would be raised periodically, certainly it would have impact on the currencies of other countries  and each one of the  countries would seek to maintain the competitiveness of its currency," BI Governor Agus Martowardojo said here on Monday night.

Currency war is a condition in which  each country deliberately weakens its currency  in a bid to shore up exports  and redress trade balance, Agus said.

He said currently the world is experiencing a phenomenal rise in the value of the US dollar causing depreciation of the currencies of various developing economies  with long term risks.

"Now the pressure is deeper than we are facing , but it is all a reaction from risk on and risk off  abroad. I see that indeed we have to be wary and be prepared to face this," he said.

For that purpose, in short and mid terms, BI would seek to maintain the stability of rupiah to keep the market players from losing confidence in the country's economy, he said.

"Under extreme pressure, we will see that the volatility remains within acceptable level to keep the market confidence," he said, adding the  market should know that BI is always there to maintain rupiah stability."
    He predicted that rupiah, which has lost much of its value,   could recover  and would regain stability after June.

Rupiah would stand at the level of 13,000-13,200 per dollar on the average in the whole of 2015, he went on predicting.

"The rupiah  'year to date' is still at 12,911 per dollar, and normally the weakening trend is seasonal until end of June, because of negative sentiments  and many liabilities to be paid with dollars, but after that the condition would be normal and the fundamentals would improve that in the third  and fourth quarters rupiah would regain value to stand at the level of 12,500 per dollar on the average," he said.

Finance Minister Bambang Brodjonegoro said the dollar strengthening  has caused currency depreciation  in a number of  countries including Indonesia .

The depreciation is also caused by the condition of the world awaiting confirmation of the Fed's plan to adjust its benchmark interest rate, Bambang said.

"What happens is that the U.S. dollar is strengthening over all other currencies  and naturally the other currencies would adjust to possibility of an increase in the U.S. interest rate," he said.

What the government could do to prevent the rupiah from fluctuating too sharply is by strengthening the structure of the  national economic fundamentals, he said.

"We have to remain watchful with the fundamentals, the current account deficit and the budget deficit . That is what we have to do," he said.

The rupiah closed on Monday at the level of 13,380 per U.S. dollar weakening from earlier level of 13,290 on external pressure. (WDY)