Rupiah Potentially Strengthens Amid Speculation of The Fed's Lowering Interest Rate

JAKARTA - The rupiah exchange rate on Wednesday, July 17, 2024, is expected to strengthen against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Tuesday, July 16, 2024, the rupiah exchange rate on the spot market closed down 0.06 percent at IDR 16,180 per US dollar.

Meanwhile, the rupiah exchange rate at Bank Indonesia (BI) Jakarta Interbank Spot Dollar Rate (Jisdor) closed down 0.17 percent to IDR 16,203 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi conveyed increasing speculation that the Fed would begin lowering interest rates in September, following weak inflation readings and somewhat dovish signals from the central bank.

Fed Chairman Jerome Powell said on Monday that the bank was increasingly confident that inflation would fall. Although he did not directly send a message regarding a rate cut, the market took his comments to mean that a rate cut was imminent.

"Traders appear to have completely ignored expectations that the Fed will hold rates steady in September, and are now pricing in a nearly 90 percent chance of a 25 basis point rate cut, according to CME Fedwatch," he said in his statement, quoted Wednesday, July 17.

Ibrahim said, however, the dollar was supported mainly by increasing speculation that Trump would get a second term. This happened when the failed assassination attempt on the former president appeared to have significantly boosted his popularity, putting him ahead of Joe Biden in the presidential election.

Trump is expected to implement a more protectionist trade policy, which has the potential to increase inflation and support the dollar.

Internally, Bank Indonesia (BI) said that Indonesia's Foreign Debt (ULN) in May 2024 was recorded at 407.3 billion US dollars or grew 1.8 percent (yoy), after experiencing a contraction in growth of 1.5 percent (yoy) in April 2024.

BI said the ULN figure was still under control.

The government's external debt position in May 2024 was recorded at 191.0 billion US dollars, or an annual growth contraction of 0.8 percent (yoy), after contracting 2.6 percent (yoy) in April 2024.

The government is consistent in maintaining credibility by fulfilling the obligation to pay principal and interest on debt on time, and managing external debt in a prudential, measured, opportunistic, and flexible manner to obtain the most efficient and optimal financing.

As one of the components in the APBN financing instrument, the use of external debt continues to be directed to support financing for productive and priority sectors, including the health services and social activities sector (21.0 percent of the total government external debt), government administration, defense, and mandatory social security (18.7 percent), and education services (16.8 percent). Then the construction sector (13.6 percent), and financial services and insurance (9.5 percent).

In order to maintain a healthy external debt structure, Bank Indonesia and the Government continue to strengthen coordination in monitoring external debt developments.

The role of ULN will also continue to be optimized to support development financing and encourage sustainable national economic growth. These efforts are made by minimizing risks that can affect economic stability.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading on Wednesday, July 17, 2024 in the price range of IDR 16,130 - IDR 16,210 per US dollar.