Rupiah Projected To Strengthen Amid Expectations For Fed Rate Scarcity

JAKARTA - The rupiah exchange rate on Tuesday 19 December 2023 is expected to move again higher amid the expectations that the Central Bank of the United States Federal Reserve (The Fed) will cut interest rates.

Quoting Bloomberg, the Rupiah exchange rate Monday, December 18, the rupiah spot exchange rate fell 0.12 percent to Rp15,510 per US dollar. Meanwhile, Jisdor's rupiah exchange rate closed down 0.08 percent to a price level of Rp15,516 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi delivered a statement from the New York Federal Reserve President John Williams that he had broken aggressive expectations of lower interest rates.

"Market participants estimate the decline in the first interest rate is likely to occur in March and a 141 basis point decline in December," he explained in his official statement Tuesday, December 19.

In addition, Fed Chair Jerome Powell's speech was previously interpreted as giving a more dovish tone at the end of the two-day meeting of the US central bank. Powell said that tightening monetary policy is likely to end, and discussions on cuts will be considered.

Furthermore, Fed Atlanta President Raphael Bostic said that the US central bank could start lowering interest rates around the third quarter of 2024, if inflation fell as expected.

Then, Fed Chicago President Austan Goolsbee also said that the Fed may need to immediately shift its focus to prevent an increase in unemployment to combat.

Ibrahim said that Indonesia's trade balance again recorded a surplus of IDR 2.41 billion in November 2023. This is the 43rd surplus since May 2020.

However, the value of Indonesia's trade surplus decreased when compared to USD 3.48 billion in October 2023. Even this surplus is much lower, when compared to USD 5.10 billion in the same month in 2022.

"The surplus achievement in November is below market forecasts. The market estimates Indonesia's trade balance surplus in November of around US$3 billion," he explained.

Ibrahim said that this surplus was actually lower than before. This is in line with the decline in exports that occurred, due to the decline in international commodity prices.

"The decline in Indonesia's trade surplus in November and the possibility of December being caused by external factors, namely the decline in world demand led to a decline in the International Trade Price Index (IHPI) and a exchange rate fluctuation that caused trade uncertainty," he explained.

Meanwhile, IHPI decreased from 175.2 in October 2023 to 174.5 in November 2023. Meanwhile, the strengthening of the exchange rate from IDR 15,916 per US dollar in October 2023 to IDR 15,384 per US dollar in November 2023.

In addition, geopolitical factors, the wars of Russia and Ukraine, Israel and Hamas as well as the "wait and see" factors of Indonesia's trading partners waiting for confirmation of the 2024 General Election, also affect Indonesia's trade performance.

However, with the influence of internal factors on Indonesia's trade balance, Indonesia's economic growth is still limited to the level of 5 percent.

According to Ibrahim, this means that Indonesia's economic growth is still below the optimal potential of between 5-6 percent per year. This is reflected in the investment ratio that has not moved from the 30 percent level of GDP.

Then, the contribution of the manufacturing sector in 2022 is below 20 percent of GDP. This declining manufacturing contribution is translated into 'deindustrialization.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Tuesday 19 December in the price range of Rp. 15,480- Rp. 15,550 per US dollar.