The Rupiah Has The Potential To Strengthen Amid The Expetition Of The Reduction Of US Interest Rates

JAKARTA - The rupiah exchange rate in trading Wednesday, June 5, 2024 is expected to weaken again against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Tuesday, June 4, 2024, the rupiah spot exchange rate closed higher by 0.06 percent to the level of Rp. 16,220 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed up 0.03 percent to a price level of Rp. 16,220 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi expressed hope that the decline in interest rates would grow because US data was weak and the dollar had fallen, so traders estimated a 52.1 percent chance for a 25 basis point interest rate drop in September, up from yesterday's expectations of 47 percent.

"This shift in expectations comes after the purchase manager index data showed on Monday that US manufacturing activity was shrinking for the second month in a row in May," he explained in his official statement, quoted Wednesday, June 5.

PMI data, released just days after data on gross domestic product (GDP) weakened, prompted speculation that the US economy is weakening, which could signal lower inflation and give more confidence in the Federal Reserve to start cutting interest rates. This idea makes the dollar sink to a two-month low.

Ibrahim said the next Fed policy meeting would end on June 12, when consumer price data would also be released. Traders and analysts do not see any risk of changing policies at the meeting, but officials will update their economic projections and interest rates.

From an internal perspective, Indonesia's economy remains healthy supported by strong domestic consumption. Previously, gross domestic product (GDP) in the first quarter of 2024 Indonesia showed growth was at the level of 5.1 percent on an annual basis. This figure was achieved by the blessing of domestic consumption, although investment and exports slightly weakened. The service sector is a bright spot supported by tourism.

Entering the second half of 2024, economic growth will be supported by strong installment growth with the influence of foreign investment and infrastructure spending. Indonesia's economy is estimated to be able to grow 5.2 percent in 2024, higher than 5 percent in 2023.

On the other hand, Bank Indonesia (BI) surprised many parties by raising the benchmark interest rate in April to 6.25 percent to overcome the weakening of the rupiah and inflation which again experienced a slight increase.

Currently, there is also uncertainty that the Indonesian bank will again raise interest rates, if the rupiah continues to weaken. Therefore, BI postponed the time to cut the first interest rate for BI-Rate and it is likely that in the fourth quarter of 2024 it will lower interest rates.

BI is likely to remain cautious in cutting flowers, and chooses to wait for steps from the central bank of the United States (US) aka The Fed. Meanwhile, the US cut in the US will take place in September 2024.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading on Wednesday, June 5, 2024, in the price range of IDR 16,180 - IDR 16,260 per US dollar.