Market Hopes To Lower Interest Rates, Rupiah Potentially Strengthens

JAKARTA - The rupiah exchange rate in trading Wednesday, May 8, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Tuesday, May 7, 2024, the rupiah spot exchange rate closed down 0.13 percent to the level of Rp. 16,046 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed down 0.18 percent to a price level of Rp. 16,054 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi said the focus this week was on comments from several Fed officials regarding interest rates, especially after weaker than expected nonfarm payroll data made traders once again begin to estimate the decline in interest rates by the central bank.

"However, this idea does not provide much support to Asian currencies, considering that the Fed is still expected to start lowering interest rates in September," he explained in his official statement, quoted Wednesday, May 8.

In addition, the Market is now awaiting further data on Japanese inflation and wage growth to measure whether the Bank of Japan will raise interest rates further this year, which is expected to provide some relief to Japanese currencies.

From an internal point of view, the Ministry of Finance (Kemenkeu) noted that the government's debt position reached IDR 8,262.10 trillion as of the end of March 2024, equivalent to 38.79 percent of Indonesia's gross domestic product (GDP).

The debt position decreased when compared to the position in February 2024 which was recorded at IDR 8,319.2 trillion, equivalent to 39.06 percent of GDP.

Meanwhile, the debt ratio in March 2024 was maintained below the safe limit of 60 percent of GDP in accordance with Law no. 17 of 2003 concerning State Finance and better than what has been established through the Medium-Term Debt Management Strategy for 2024-2027 in the range of 40 percent.

If detailed, the majority of government debt as of the end of March 2024 comes from within the country with a proportion of 71.52 percent. This is in line with the general policy of debt financing to optimize domestic financing sources and use foreign debt as a complement.

Meanwhile, based on the instrument, the composition of government debt is mostly in the form of Government Securities (SBN) which reached 88.05 percent.

It was noted that as of the end of March 2024, financial institutions hold around 43.4 percent of domestic SBN ownership, consisting of 24.8 percent of banking and 18.6 percent of insurance and pension funds.

Meanwhile, the ownership of domestic SBN by Bank Indonesia (BI) is 21.3 percent, which among other things is used as an instrument for monetary management.

On the other hand, the Ministry of Finance noted that foreigners only have a domestic SBN of around 14.2 percent, including ownership by the government and foreign central banks. Ibrahim estimates that the rupiah will fluctuate but close higher on trading Wednesday, May 8, 2024, in the price range of Rp. 16,000 - Rp. 16,080 per US dollar.