Rupiah Is Predicted To Weaken After BI Still Defends Benchmark Interest Rates

JAKARTA - The rupiah exchange rate on Friday 22 December 2023 is expected to move again lower after the Meeting of the Board of Governors of Bank Indonesia (RDG BI) which still maintains interest rates in efforts to maintain rupiah stability, but provides a dovish view on the global economy next year.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, December 21, the rupiah spot exchange rate fell 0.09 percent to Rp15,525 per US dollar. Meanwhile, Jisdor's rupiah exchange rate closed down 0.14 percent to a price level of Rp15,533 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said that BI's decision to maintain this benchmark interest rate remains consistent with a prostability monetary policy, to strengthen the stabilization of the rupiah exchange rate and pre-emptive and forward looking steps to ensure inflation remains under control in the target of 3.0 percent plus minus 1 percent in 2023 and 2.5 plus minus 1 percent in 2024.

Then there are a number of factors that make BI maintain its benchmark interest rate. First, the inflation rate in November 2023 was recorded at 2.86 percent (yoy), quite an increase from 2.56 percent yoy compared to the previous month.

"The rise in food prices is also reflected in the volatile price component which recorded inflation of 7.59 percent (yoy) in November 2023, a significant increase from 5.54 percent (yoy) in the previous month," he explained in his official statement Friday, December 22.

The next factor, namely the trade surplus, shrank to USD 2.41 billion in November 2023 from USD 3.48 billion in the previous month. The narrowing of the trade surplus was influenced by a combination of falling exports and increasing imports over the past month.

Exports slumped 8.56 percent yoy or 0.67 percent mtm as a result of the slowdown in demand for iron and steel in line with the weakening purchasing power for property and manufacturing in China which caused a decline in non-oil and gas exports of around 167 million US dollars.

From the external side, continued Ibrahim, the bet on the decline in the interest rate of the Central Bank of the United States of the Federal Reserve in March 2024 remains. The market is also looking forward to a number of economic data that will be released this week, including the US economic power that gives the Fed more space to maintain higher interest rates in the longer term.

The US weekly unemployment claim data will also be released on Thursday, while the reading of the PCE price index of the Fed's preferred inflation gauge will be released on Friday, Ibrahim said.

Ibrahim said inflation and labor market power were the main points in debate for the Fed, as both sectors have shown surprising resilience in recent months.

In Asia, Bank Rakyat China (PBOC) maintains its benchmark loan interest rate at its lowest record this week, as the bank struggles to maintain a balance between driving economic growth and stemming the weakening of its currency.

"This is what makes the market stay nervous about China's economic prospects which continue to weaken due to the provincial crisis, which until now there is still no termination point," he said.

Ibrahim estimates that the rupiah will fluctuate but closed lower on Friday, December 22 trading in the price range of Rp15,500- Rp15,550 per US dollar.