Concerns that US Inflation will Increase, Rupiah Potentially Weakens Again

JAKARTA - The rupiah exchange rate on trading Thursday, May 30 2024 is expected to weaken again against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, May 29 2024, the spot rupiah exchange rate closed down 0.43 percent to IDR 16,160 per US dollar. Likewise, the Jakarta Interbank Spot Dollar Rate (Jisdor) Bank Indonesia (BI) rupiah exchange rate closed down 0.40 percent to a price level of IDR 16,160 per US dollar.

PT.Laba Forexindo Berjangka Director Ibrahim Assuaibi said US economic data was better than expected in the first quarter and so far there are no signs of a major decline in areas such as the labor market, which some traders are waiting for before taking a more bearish view on the greenback.

"Concerns that inflation will remain above the Fed's target for a longer period of time also provide some support for the US currency," he explained in his official statement, quoted Thursday, May 30.

Ibrahim said the previous day's data showed that inflation concerns remained and many households expected higher interest rates next year.

Ibrahim said consumer price inflation showed less-than-expected price increases in April had raised hopes that the Fed was getting closer to cutting interest rates, but Fed officials have emphasized that they want to see a few more months of progress before easing policy.

From an internal perspective, it is feared that the increasing geopolitical tensions occurring in the Middle East, especially between Palestine and Israel, could have an impact on the Indonesian economy, so geopolitical risks must continue to be monitored. Any escalation will trigger financial market volatility.

Mainly due to concerns about soaring oil prices and making inflation stiffer again and difficult to reduce towards the target. It is hoped that this condition will not happen again. Apart from that, the potential for an increase in oil prices if the conflict escalates will also have an impact on the State Budget (APBN) deficit which could increase, considering that currently there are still fuel subsidies in the state budget posture.

This concern is of course based on the fact that the Middle East region where the conflict is currently taking place is one of the regions that supplies the largest petroleum in the world.

Additionally, news that the Israeli military denied attacking a tent camp west of Rafah, where Gaza health authorities reported that Israeli tank shelling killed at least 21 people in a designated civilian evacuation zone, brought tensions to new heights.

Simultaneously, Bank Indonesia continues to strengthen coordination with all relevant authorities to continue to encourage economic growth amidst pressure from the global economy which continues to slow down due to high inflation caused by the crisis of Russia's invasion of Ukraine and the crisis in the Middle East between Israel and Hamas (Palestine) which continues to heat up, and continues to optimize the policy mix strategy, in order to maintain macroeconomic and financial system stability to support further economic recovery.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Thursday, May 30 2024 in the price range of IDR 16,150 - IDR 16,200 per US dollar.