Towards The End Of The Year, Rupiah Potentially Strengthens Amid Expectations For Lowering Interest Rates

JAKARTA - The rupiah exchange rate on Thursday, December 28, 2023 is expected to move higher against the United States (US) dollar amid expectations of lowering the United States interest rate.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, December 27, the rupiah spot exchange rate rose 0.35 percent to Rp15,430 per US dollar. Meanwhile, Jisdor's rupiah exchange rate closed up 0.48 percent to a price level of Rp15,414 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said the Fed indicated that his party had finished raising interest rates and would consider a decline in 2024.

On the other hand, the market now estimates the Fed will lower interest rates between three and five times by 2024, although the bank has provided little signal regarding the extent of plans to lower interest rates.

"The Fed's officials also recently warned that speculation of an early drop in interest rates was unfounded, especially as inflation remained stable," he explained in his official statement Thursday, December 28.

In addition, Many analysts expect the US economy to slow down significantly by 2024, but the Fed is also expected to act to ensure that the gap between the Fed's interest rate and inflation's realization does not widen too far.

If inflation drops much faster than the Fed's benchmark interest rate, then this could tighten monetary conditions more than expected by Fed policymakers and increase the risk of hard economic landing.

From an internal perspective, the market is optimistic that Indonesia's economy will grow stronger in 2024, by 5.2 percent, compared to this year's projected growth of 5 percent.

Meanwhile, improving economic growth will be supported by strong domestic demand in line with high consumer confidence and the push for expenditure related to elections.

In addition, the development of national strategic projects, including the capital city of Nusantara (IKN), as well as the gradual recovery of external demand, is expected to support domestic economic growth. Also, strong policy synergies among policy makers must be maintained to maintain stability and support economic activities.

Then, Bank Indonesia continues to strengthen the mix of economic policies by increasing policy interest rates, managing exchange rate volatility, and increasing the deepening of financial markets, especially in order to maintain inflation expectations and support the stability of the rupiah exchange rate.

BI also continues the implementation of accommodative macroprudential policies by strengthening Macroprudential Liquidity Policy (KLM) and reducing Macroprudential Liquidity Supporting (PLM) requirements to encourage bank credit disbursement to the business world.

Ibrahim estimates that the rupiah will fluctuate but close higher on trading Thursday, December 28 in the price range of IDR 15,400- IDR 15,470 per US dollar.