US Inflation Still High, Potentially Weakening Rupiah

JAKARTA - The rupiah exchange rate in trading Thursday, May 2, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, April 30, 2024, the rupiah spot exchange rate closed down 0.02 percent to the level of Rp. 16,259 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed lower by 0.17 percent to a price level of Rp. 16,276 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said the dollar index rose by around 0.3 percent in Asian trade, as investors prepare for Fed meetings and concerns over higher US interest rates over a longer period of placing the dollar on the 1.3 percent increase line in April.

"The focus is now on the Fed meeting this weekend, where the central bank is expected to keep interest rates stable. But Fed Chair Jerome Powell is expected to offer a more hawkish view of interest rates, especially following a series of hot inflationary readings," he explained in his official statement, quoted Thursday, May 1.

According to Ibrahim, high signs of inflation led most traders to ignore the expectations of a short-term rate drop by the Fed.

The central bank is now expected to only lower interest rates in September, or the fourth quarter, if any, this year.

Official PMI data from China showed manufacturing activity slowed slightly from what was expected in April compared to March. However, non-manufacturing activity slowed down more than expected.

Ibrahim said that although private surveys provide a better picture of the manufacturing sector, data on Tuesday still outlines a continued weakening in China's economy, although the first quarter showed strong performance.

From an internal perspective, the International Monetary Fund (IMF) has opened its voice about Indonesia's economic projection in the midst of the transition period of government from President Joko Widodo (Jokowi) to President-elect Prabowo Subianto, that his party sees more emphasis on policy continuity. As well as a note regarding increasing budget spending and measures in increasing state revenue.

Overall, there is a continuity in policy reform between the Jokowi and Prabowo eras, namely in Indonesia's way of achieving good progress so far.

This is reflected in the strong economic fundamentals of the Republic of Indonesia and the government must play an important role in closing the gap in infrastructure, education and encouraging reform of governance.

In addition to education and infrastructure, other key reforms are reform of state revenues. Indonesia has a tax ratio of 10 percent which is low compared to the need for structural spending for education, infrastructure, and social safety nets.

The IMF has provided options for acceptance reform as very important to the new government.

On the other hand, the IMF sees the country's economic growth to be quite strong.

The IMF projects the Indonesian economy to grow 5 percent in 2024 and 5.1 percent in 2025.

Ibrahim conveyed that Indonesia's macro fundamentals, be it fiscal deficits, are also below the upper limit they have. Inflation is also considered to be in the target range.

So the 5 percent figure is a very strong growth rate and Indonesia has performed well, growing very close to potential over the past decade.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Thursday, May 2, 2024, in the price range of IDR 16,200 - IDR 16,300 per US dollar.