The Rupiah Has The Potential To Weaken Again Amid Weakening US Inflation

JAKARTA - The rupiah exchange rate in trading Tuesday, June 4 is expected to again move lower against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Monday, June 3, 2024, the rupiah spot exchange closed higher by 0.14 percent to the level of Rp. 16,230 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed up 0.15 percent to a price level of Rp. 16,225 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said the personal consumption expenditure price index (PCE) increased 0.3 percent last month, this increase matched the unrevised gains in March.

"The reading of the main, harmonious inflation has made traders increase their position for a lower interest rate by the Federal Reserve in September," he explained in his official statement, quoted Tuesday, June 4.

Ibrahim said the Fed had raised loan fees by 525 basis points since March 2022 in an effort to reduce demand across the economy.

In addition, the financial market initially estimated a reduction in the first interest rate would take place in March, but was later pushed back to June and now to September.

According to Ibrahim, the focus of this week is on interest rate decisions in Europe and Canada. Both the European Central Bank and the Central Bank of Canada are expected to start cutting interest rates, potentially triggering monetary easing worldwide.

"The Fed will also hold a meeting next week, although the central bank is expected to keep interest rates stable," he said.

From an internal point of view, Indonesia's inflation rate in May 2024 reached 2.84 percent YoY. This value is lower than April's position of 3 percent. Meanwhile, on a monthly basis, Indonesia in May 2024 experienced deflation.

Meanwhile, this decline was mainly due to a decrease in food and energy prices. Then, the moments of Ramadan and Eid al-Fitr which have ended make food sector prices deflate.

Meanwhile, on a separate occasion, Bank Indonesia Governor Perry Warjiyo explained that this inflation is a serious concern for the monetary authority in making policies. BI estimates that inflation is in the range of 2.5 percent plus minus 1 percent.

BI also believes that core inflation can be maintained in line with inflation expectations that are rooted in the target, the economic capacity is still large and can respond to domestic demand, controlled imported inflation in line with Bank Indonesia's rupiah exchange rate stabilization policy, and the positive impact of digitalization.

However, BI estimates that volatile food inflation is also predicted to decline again as production increases due to the entry of the harvest season and support for the synergy in controlling inflation of the Central and Regional Inflation Control Team (TPIP and TPID) through the National Food Inflation Control Movement (GNPIP) in various regions.

He explained that Bank Indonesia will continue to strengthen its monetary policy of pro-stability and increase policy synergy with the Central-Regional Government so that inflation in 2024 and 2025 remains under control in the target of 2.5 percent plus minus 1 percent.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, June 4, 2024, in the price range of Rp. 16,220 - Rp. 16,270 per US dollar.