Rupiah Potentially Strengthens Ahead Of Expectations For Lowering Interest Rates

JAKARTA - The rupiah exchange rate in trading on Thursday, February 22, 2024 is expected to move again higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, February 21, the rupiah spot exchange rate was closed up 0.16 percent Rp15,635 per US dollar. Similarly, Jisdor's rupiah exchange rate closed up 0.006 percent to a price level of Rp15,658 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said that the focus is now on the minutes of the Fed meeting at the end of January to get more clues regarding the possible direction of the US interest rate.

The central bank had maintained a stable interest rate during the meeting, but largely underestimated expectations of early interest rates.

"In addition to the minutes of the Fed meeting on Wednesday, the focus was also on speeches from a series of Fed officials this week, including Raphael Bostic and Michelle totaling, both of whom were part of the bank's interest rate-set committee," he said in a statement quoted Thursday, February 22.

China's central bank cut interest rates by a larger margin than expected on Tuesday, while Beijing also announced a series of support measures aimed at the sluggish property market, in a bid to shore up economic growth.

In addition, official data shows a major increase in consumer spending and travel demand during the Lunar New Year holiday, raising hopes of China's recovery in consumption, which is the main driver of the economy.

From an internal point of view, Bank Indonesia (BI) again detained the benchmark interest rate or BI Rate at the level of 6 percent in the Board of Governors' Meeting (RDG) which took place on February 20-21, 2024. The Deposit Facility interest rate was also decided to remain at 5.25 percent and the Lending Facility interest rate at 6.75 percent.

This is in line with the expectations of analysts who estimate absolutely that BI will hold the benchmark interest rate (BI rate) at the level of 6.00 percent. The Deposit Facility interest rate is now at 5.25 percent and the Lending Facility rate at 6.75 percent.

So this is BI's fourth time holding back at that level after holding back in November, December and January. Previously, BI raised its interest rate in October 2023 by 25 basis points (bps) from 5.75 percent.

Ibrahim conveyed that the factor that made BI hold back the benchmark interest rate was the sentiment of the current election uncertainty that occurred in Indonesia and the Fed's decision that had not given a signal of lower interest rates, Indonesia still recorded an entry capital flow.

Inflation maintained at the level of 2.47 percent yoy in January 2024 is believed not to be a pressure for the BI Rate. Although, in the next two months there is the potential for an increase in inflation as a result of the increase in rice value and seasonal aspects of Ramadan.

"However, it is necessary to guard the difference between adequate yields between Indonesian government bonds and US bonds which are very important to prevent capital outflows," he explained.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading on Thursday, February 22 in the price range of IDR 15,600- IDR 15,670 per US dollar.