Rupiah Potential to Continue Weakening Due to Impact of Global Uncertainty

JAKARTA - The rupiah exchange rate on Monday, July 29, 2024, is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Friday, July 26, 2024, the rupiah exchange rate on the spot market closed down 0.31 percent at IDR 16,301 per US dollar. Meanwhile, the rupiah exchange rate at the Jakarta Interbank Spot Dollar Rate (Jisdor) Bank Indonesia (BI) closed down 0.15 percent to IDR 16,294 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said the market took several positive cues from the stronger-than-expected second-quarter US GDP data. The focus is also on the upcoming PCE price index data, the Federal Reserve's preferred inflation gauge, for further cues on interest rate cuts.

"The reading is expected to show inflation easing further in June, albeit slightly. It also comes days ahead of the Fed meeting where the central bank is widely expected to hold interest rates steady and hint at a rate cut in September," he said in his statement, quoted Monday, July 29.

Ibrahim said lower interest rates bode well for gold and precious metals, given that they reduce the opportunity cost of investing in non-yielding assets.

Internally, the market continues to monitor the development of Indonesia's Foreign Debt (ULN) to China, which has been seen to swell in the 10 years of President Joko Widodo's (Jokowi) leadership, with the last position in May 2024 being worth 22.86 billion US dollars or equivalent to IDR 372.3 trillion (this morning's exchange rate is IDR 16,288 per US dollar).

Based on Bank Indonesia's (BI) Foreign Debt Statistics Data, in general Indonesia's ULN position at the end of May 2024 was at 407.3 billion US dollars or equivalent to Rp6,634.1 trillion. The position rose 1.8 percent (year-on-year/yoy) from May 2023.

On a monthly basis or month-to-month (mtm) from April 2024, the foreign debt position rose 2.1 percent from 398.82 billion US dollars to 407.3 billion US dollars. Bank Indonesia noted that the increase in debt was mainly driven by the central bank, with a value of 18.78 billion US dollars in May 2024, up from 9.26 billion US dollars in May 2023.

Although debt has increased, Indonesia's external debt structure until May 2024 remains healthy, supported by the application of the principle of prudence in its management. This is reflected in the ratio of Indonesia's external debt to GDP which was recorded at 29.8 percent, and was dominated by long-term external debt with a share reaching 85.9 percent of total external debt.

Specifically, Indonesia's external debt position towards China, there was an increase both annually and monthly, which were 14.28 percent (yoy) and 4 percent (yoy) respectively. However, when comparing external debt from China with total external debt as a whole, the portion of debt from China was recorded at only around 5.6 percent of Indonesia's total debt.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Monday, July 29, 2024 in the price range of IDR 16,290 - IDR 16,370 per US dollar.