Rupiah Potentially Continues Weakening Due To The Impact Of Rising Interest Rates

Illustration (Photo: Doc. Antara)

JAKARTA - The rupiah exchange rate against the United States (US) dollar has the potential to continue its weakening in trading Tuesday, October 24.

For information, based on Bloomberg data, the rupiah weakened 0.38 percent to the level of IDR 15,933 per US dollar on Monday, October 23.

According to the Jakarta Interbank Spot Dollar Rate (JISDOR) benchmark rate, the rupiah exchange rate was at IDR 15,943 lower than IDR 15,856 on the previous trading day.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said that for trading on Tuesday, October 24, the rupiah currency moved fluctuately but closed lower and was stretched to Rp15,910-Rp15,970 per US dollar.

Ibrahim conveyed that the increase in the benchmark interest rate of Bank Indonesia had a significant impact on the economy, especially in the context of consumption and inflation.

"In terms of public demand, it will be affected by the increase in interest rates, considering that this makes loans more expensive. As a result, people's purchasing power is likely to decrease," he explained in his official statement, Monday, October 23.

According to Ibrahim, after the benchmark interest rate rose, people tended to be more careful.

Especially in taking loans which in turn reduce their spending for various purposes.

Meanwhile, the supply side was also affected by the increase in interest rates.

This increase will boost the company's production costs to a higher level, as they have to pay higher interest rates for their loans.

As a result, companies can experience a decline in their profits.

Theoretically, the increase in Bank Indonesia interest rates has a negative impact on consumption.

"People's consumption will decrease because prices for goods and services tend to increase due to higher production costs, one of which is because of the high cost of funds," he said.

In addition to the impact on consumption, the increase in BI interest rates can also have a positive impact on inflation.

This happened through a decrease in aggregate demand triggered by an increase in interest rates.

The increase in interest rates has the potential to make loans more expensive.

Ibrahim conveyed that this condition certainly also has the potential to reduce community spending as a whole.

So that it can help control inflationary pressures because lower demand can reduce the price of goods and services.

In addition, according to Ibrahim, concerns about transmission from the latest war in the Middle East and doubts the Federal Reserve to raise US interest rates again deliver negative impacts.

"As well as more intensive diplomatic efforts in an effort to contain the conflict between Israel and the Palestinian Islamic group Hamas," he said.