The Rupiah Is Predicted To Be Under Pressure Despite The Fed's High Interest Rate

Rupiah and US Dollars (Photo: dock. Antara)

JAKARTA - The rupiah exchange rate on Thursday 23 November 2023 is expected to weaken again due to the market predicting that the Fed has finished raising interest rates. However, the Fed minutes still signaled high interest rates in the longer term.

Quoting Bloomberg, on the Rupiah exchange rate on Wednesday 22 November, the spot rupiah exchange rate strengthened slightly by 0.87 percent to IDR 15,575 per US dollar. Meanwhile, the Jisdor rupiah exchange rate weakened 0.96 percent daily to a price level of IDR 15,584 per US dollar.

Director of PT. Profit Forexindo Berjangka Ibrahim Assuaibi said that the market estimates that the Fed has finished raising interest rates. But Tuesday's meeting minutes raised doubts about when the central bank would start cutting interest rates, given that most Fed officials also repeatedly hinted at longer-term rate hikes.

"Even though the market remains confident that the Fed will not raise interest rates again, the Fed's minutes have raised doubts about when the central bank will start cutting interest rates," he explained in his official statement Thursday, November 23.

Ibrahim said the CME Group's Fedwatch tool showed traders were reconsidering expectations of an interest rate cut in March 2024, according to signals of a 40 percent chance of a rate cut.

Investors are also closely monitoring upcoming economic announcements and are awaiting an autumn statement from UK Chancellor of the Exchequer Jeremy Hunt in the House of Commons, which could provide further direction for currency markets.

The government is increasing vigilance as China's economic growth slows. The reason is, China is one of the countries that has strong relations with Indonesia as a trading partner, because 20 percent of Indonesia's exports go to China.

China's economy continues to experience a slowdown due to the weakening property sector, as well as declining foreign direct investment (FDI).

The weakening of these two sectors has a significant impact on China's economy, because they are the main engines driving the economy. This is different from the Indonesian economy which is driven more by consumption.

One of the impacts of the weakening Chinese economy in Indonesia is the slowdown in exports in the third quarter of 2023. Export performance contracted 4.26 percent (year-on-year/yoy) in the third quarter of 2023, while imports contracted 6.18 percent yoy. Even so, the manufacturing industry grew 5.20 percent yoy, contributing 1.06 percent yoy to national economic growth.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Thursday, November 23 in the price range of IDR 15,560- IDR 15,620 per US dollar.