The Rupiah is Predicted To Weaken Again Due To The Fed's Hawkish Signal

JAKARTA - The rupiah exchange rate on Thursday 14 December 2023 is expected to weaken again after falling US inflation data gave a signal that the Fed will not reduce interest rates in the near future.

Quoting Bloomberg, on the Rupiah exchange rate on Wednesday, December 13, the spot rupiah exchange rate weakened slightly by 0.26 percent to IDR 15,661 per US dollar. Meanwhile, the Jisdor rupiah exchange rate closed higher to IDR 15,629 per US dollar from yesterday's position of IDR 15,631 per US dollar.

Director of PT. Profit Forexindo Berjangka Ibrahim Assuaibi said the market remains confident that the Fed will keep interest rates unchanged on Wednesday. But, a strong labor market and unstable inflation figures raise uncertainty about the central bank's prospects in 2024.

"in November, while consumer inflation rose and remained well above the Fed's annual target of 2 percent. Traders were seen reducing bets on a rate cut in March, amid growing concerns that Fed Chair Jerome Powell could repeat the bank's higher rhetoric for a longer period of time," he explained in his official statement Thursday, December 14.

Ibrahim said any hawkish signals from the Fed would likely trigger a sharp decline in risk-driven assets, which have risen sharply over the past month amid optimism about the Fed's pivot.

"Fed funds futures prices suggest a 43 percent chance of a rate cut in March, down sharply from the 60 percent expected last week," he explained.

Domestically, the market continues to monitor comments from economists, who continue to provide positive comments about economic growth in 2024.

Meanwhile, Indonesia's economic growth is predicted to be slower in the 2024 political year, it will be in the range of 4.9-5 percent compared to this year's predicted 5 percent. One of the reasons is because next year there will be elections which will make all parties careful because various conditions in developed countries are still experiencing contraction.

Apart from that, what will affect Indonesia's economic growth next year is weakening commodity prices, such as the prices of crude oil, palm oil, coal and basic metals. Then, domestic consumption is expected to weaken because wages have not increased significantly.

This means that the lower middle class will hold back consumption, reflected in the decline in sales of motor vehicles and houses.

Ibrahim explained that general inflation is predicted to fall in 2024. Inflation next year is predicted to be 2.5-3 percent. However, the problem is the increase in food prices which causes food inflation to be higher.

Stable household consumption will tend to weaken, investment will remain relatively stable due to the slowdown caused by the political year being dampened by downstream policies, exports will weaken because the surplus is thinning, the government spending will strengthen.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Thursday, December 14 in the price range of IDR 15,640- IDR 15,710 per US dollar.