Impact Of The Fed Official Comments, Rupiah Potentially Weakening

JAKARTA - The rupiah exchange rate in trading Wednesday, May 22, 2024 is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Tuesday, May 20, 2024, the rupiah spot exchange rate closed down 0.13 percent to the level of Rp. 15,998 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed down 0.27 percent to a price level of Rp. 16,024 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said Greenback was supported by more comments from Fed officials that the central bank still needs to be more convinced that inflation is going down, and that interest rates are unlikely to change temporarily.

"This makes the minutes of the Fed meeting at the end of April, which is scheduled for Wednesday, the main focus, to gain further insight into the bank's attitude towards interest rates," he explained in his official statement, quoted Wednesday, May 22.

Ibrahim said Federal Reserve officials were not ready to say that inflation was heading towards a US central bank target of 2 percent after last week's data showed a reduced consumer price pressure in April, and some of them on Monday called for careful policy continuation.

From an internal point of view, Bank Indonesia (BI) noted that the performance of the Indonesia Payment Balance (NPI) in the first quarter of 2024 was maintained. The current account deficit remains low amid a global economic slowdown. Meanwhile, capital and financial transactions recorded a controlled deficit in line with the impact of increasing global financial market uncertainty.

With these developments, Indonesia's Payment Balance in the first quarter of 2024 recorded a deficit of 6.0 billion US dollars and a foreign exchange reserve position at the end of March 2024 was recorded to remain high at US$ 140.4 billion, or equivalent to financing 6.2 months of imports and payment of government foreign debt, and was above the international adequacy standard of around 3 months of imports.

Transactions are running to record a low deficit in the midst of a global economic slowdown. In the first quarter of 2024, transactions took place recording a deficit of US$2.2 billion or 0.6 percent of GDP, higher than the deficit of US$1.1 billion or 0.3 percent of GDP in the fourth quarter of 2023.

Furthermore, the performance of capital and financial transactions remains solid, supported by direct investment amid increasing conditions of global financial market uncertainty. Direct investment posted an increase in surplus from the previous quarter as a reflection of the maintained positive perception of investors towards economic prospects and the domestic investment climate.

In the future, BI will always pay close attention to the dynamics of the global economy that can affect the prospects for NPI and continue to strengthen the response of policy mixes supported by close policy synergies with the Government and relevant authorities to strengthen the resilience of the external sector.

With synergy, NPI 2024 is predicted to be maintained with transactions running in the low deficit range of 0.1 percent to 0.9 percent of GDP.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Wednesday, May 22, 2024, in the price range of IDR 15,980 - IDR 16,040 per US dollar.