Indonesia fill not intervene in FX markets

Several weeks ago, the Central Bank of Thailand suddenly implemented capital controls designed to curb the inflow of foreign money that was causing the Thai Baht to appreciate. Speculation immediately began to mount that other Asian countries would follow suit, since many of the region’s other currencies also experienced significant appreciation in the latter half of 2006. Indonesia has become the first country to step forward and allay investor concerns by announcing that it intends neither to impose similar capital controls nor to intervene on behalf of its currency, the rupiah. Apparently, the country’s economic policy team believes that continued foreign investment will be critical to maintaining high GDP growth. The Wall Street Journal reports:

The rupiah has appreciated about 7% against the dollar this year, less than half the increase in the value of the baht. And Indonesia's propensity to suffer from bouts of inflationary pressure will act as a natural brake on rapid currency appreciation.

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