Interest Rate Expectation Market Drops, Rupiah Predicted Lesu

JAKARTA - The rupiah exchange rate in trading Friday, February 2, 2024, is expected to move fluctuating again but closed lower against the United States (US) dollar in line with the expectations of lowering the benchmark interest rate.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, February 1, the rupiah spot exchange rate closed higher by 0.11 percent Rp15,764 per US dollar. Meanwhile, Jisdor's rupiah exchange rate closed up 0.18 percent to a price level of Rp15,775 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said the market is now seeing a decline in May. Fed chairman Jerome Powell said that the recent stiffness of inflation would prevent the central bank from easing its monetary system in the near future.

"This makes most traders reduce speculation that the Fed will start lowering interest rates by March 2024 at the latest. But Powell is still recording much progress in the central bank's struggle against inflation, and also shows the continued resilience of the US economy," he said in a statement quoted Friday 2 February.

Jerome Powell's comments made traders begin to estimate the possibility that the central bank would start lowering interest rates from May 2024.

Traders also take into account the assumption that delaying the Fed's interest rate will cause the bank to relax its monetary rate more aggressively by 2024, leading to a deeper drop in interest rates.

"Grandman Sachs analysts say they are still estimating five lower interest rates in 2024, starting in May. The CME Fedwatch tool shows traders expect more than 60 percent chance for a 25-base point drop in May," he said.

From an internal point of view, Bank Indonesia gives a signal that there is an opportunity to lower the benchmark interest rate or BI Rate. However, before doing so, BI will remain focused on efforts to maintain the stability of the rupiah exchange rate. Opportunities for lowering interest rates are open. In the second half of 2024, BI predicts that the central bank of the United States (The Fed) will reduce interest rates.

In addition, although the uncertainty is still overshadowed, the fundamental condition of the economy is maintained. Inflation is maintained and the trade balance is in surplus. BI's monetary policy is still directed at prostability. In January 2024, BI maintained interest rate at the level of 6 percent.

Simultaneously, the Central Statistics Agency (BPS) recorded that in January 2024 inflation was 0.04 percent on a monthly basis (mtm) with an increase in the Consumer Price Index (IHK) of 105.19. Meanwhile, the year-on-year inflation rate (January 2024 to January 2023) was recorded at 2.57 percent and the inflation rate for the calendar year (January 2024 to December 2023) was 0.04 percent.

The monthly inflation rate in January 2024 is lower than the previous month and the same month last year. The largest contributor to inflation in January 2024 based on the expenditure group was food, beverages and tobacco at 0.18 percent mtm with a share of 0.05 percent.

Ibrahim estimates that the rupiah will fluctuate but closed lower on Friday, February 2 trading in the price range of Rp. 15,750- Rp. 15,820 per US dollar.