By Gayatri Suroyo and Fransiska Nangoy
JAKARTA (Reuters) -Indonesia’s President Joko Widodo said on Tuesday the rupiah’s recent depreciation rate against the dollar was still “safe” for Southeast Asia’s largest economy and its inflation targets and that his government was drafting tax incentives to boost growth.
Speaking at a seminar attended by investors, Jokowi, as the president is popularly known, warned of the potential for oil prices to soar due to the escalating conflict in the Middle East and capital outflows linked to U.S. monetary tightening, which could affect Indonesia’s economy.
“If we see the percentage of the depreciation of our currency, it’s still safe for the real sector, safe for the financial sector, as well as for inflation,” Jokowi said.
The rupiah has dropped by as much as 4.7% from its last peak in early September, coming under pressure amid investors’ risk-off sentiments and leading Indonesia’s central bank to unexpectedly raise interest rates last week.
Some economists say more hikes are likely if the currency continues to decline.
The currency strengthened as much as 0.66% on Tuesday to trade at 15,825 against the U.S. dollar, but remained near its weakest levels since 2020.
“We have to be calculative and prepare for the long run,” the president said, adding that his state budget has endurance to withstand shocks until 2024 with his finance ministry holding 616 trillion rupiah ($38.84 billion) in cash as of Oct. 13.
Jokowi said the government was also preparing tax incentives for the property sector, which may include the removal of a value-added tax for house purchases.
Separately, finance ministry official Febrio Kacaribu said the government was preparing measures to keep prices of rice, an important food staple, affordable, with details of the policy to be made public soon.
Indonesia this month said it would import 1.5 million metric tons of rice in 2023, in addition to a 2.3 million tons import quota issued earlier this year, to top up government rice reserves and cool rising prices.
Finance Minister Sri Mulyani Indrawati said late on Monday the government would come up with policy packages aimed at keeping inflation low, protecting people’s purchasing power and supporting economic growth.
The September headline inflation rate was 2.28%, within Bank Indonesia’s target range of 2% to 4%.
($1 = 15,860.0000 rupiah)
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