The Rupiah Still Has the Potential to Weaken, These Are the Factors

JAKARTA - The rupiah exchange rate in trading on Tuesday, January 23 2024 is expected to fluctuate again but will close lower against the United States (US) dollar driven by external sentiment.

Quoting Bloomberg, the Rupiah exchange rate on Monday 22 January, the spot rupiah exchange rate weakened 0.14 percent to IDR 15,637 per US dollar. Meanwhile, the Jisdor rupiah exchange rate closed slightly higher by 0.006 percent to a price level of IDR 15,627 per US dollar.

PT Laba Forexindo Berjangka Director Ibrahim Assuaibi said the CME Fedwatch tool showed on Monday that traders now expect a greater chance that the Fed will hold interest rates steady in March, compared to initial expectations for a rate cut.

"The tool suggests a 52.9 percent chance for the Fed to hold rates steady, up sharply from the 19 percent chance seen last week. Traders are also pricing in a 46.2 percent chance of a 25 basis point cut, down sharply from the 76.3 percent chance seen last week," he said in his statement quoted Tuesday, January 23.

According to Ibrahim, this shift in expectations occurred amidst statements by Fed officials who stated that it was still too early for the central bank to consider lowering interest rates, especially because inflation was still stagnant.

In addition, the Central Bank is also expected to maintain interest rates at its meeting next week.

But before that, a series of important US economic data will be released this week. Fourth-quarter GDP data will be released on Thursday, while data on the PCE price index -- which is the Fed's preferred measure of inflation -- will be released on Friday. Both readings are expected to factor into the Fed's interest rate plans this year.

Additionally, China's economy showed slight signs of improvement on Monday, after the People's Bank of China (PBOC) kept its benchmark lending rate at a record low, signaling that it has limited room to ease policy further and support growth.

Meanwhile, outside China, a number of purchasing managers' indices from several major countries will be released this week, and are expected to show continued weakness in business activity.

From an internal perspective, the Government is targeting investment of IDR 77.5 trillion in 20 Special Economic Zones (KEK) in 2024, an increase of 17.4 percent compared to the 2023 achievement of IDR 66 trillion. Throughout 2023, investment in KEK absorbed 57,005 workers, while in 2024 it is targeted to be able to absorb 38,227 workers

Cumulatively from 2015 to 2023, investment in KEK has absorbed investment of IDR 177.5 trillion and absorbed a workforce of 117,492 people, with a total of 331 business/industry players.

KEK provides various fiscal facilities to companies investing in Special Economic Zones, namely tax, customs and excise facilities. Regarding taxes, for example, there is a reduction in Corporate Income Tax 25, then for imports of raw and auxiliary materials there is a suspension of BM, exemption from excise, exemption from VAT, PPnBM and import PPh and exemption or relief from regional taxes and regional levies (PDRD).

Apart from the tax, excise and customs facilities above, the Government also provides convenience for entrepreneurs in terms of land, permits and immigration. Overall investment in SEZs makes a positive contribution to the economy with a trend that tends to increase during the 2019-2023 period.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, January 23 in the price range of IDR 15,610- IDR 15,660 per US dollar.