Signs The Fed's Fraction Of Interest Rates Is Getting Closer, Rupiah Has The Potential To Strengthen

JAKARTA - The rupiah exchange rate in trading Friday, August 2, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, August 1, 2024, the rupiah exchange rate on the spot market closed up 0.14 percent at the level of Rp. 16,237 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed higher by 0.31 percent to a price level of Rp. 16,243 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said Federal Reserve Chair Jerome Powell indicated that interest rate cuts could be carried out no later than September if inflation remained in line with expectations.

"Powell, speaking at a press conference after Fed's decision not to change its benchmark interest rate, raised investor expectations for a cut in interest rates in September by stating that policymakers are increasingly confident that inflation is continuing to approach the target of 2 percent," he said in his statement, quoted Friday, August 2.

From a domestic perspective, national manufacturing activity was recorded to have contracted after staying at the expansion level for 34 consecutive months. The Purchasing Manager's Index (PMI) of Indonesian manufacturing in July 2024 is now at the level of 49.3 or down 1.4 points from the previous month.

Based on the S&P Global report, the manufacturing PMI contracted below level 50 last time in August 2021 during the pandemic. At that time, Indonesia's manufacturing PMI was at the level of 43.7. After that, manufacturing performance continued to expand. The condition of manufacturing operations in July 2024 contracted due to the output rate and new demand dropped at a moderate level.

The main factor that causes the decline in the manufacturing PMI index is the market demand which has decreased drastically so that sales have slumped for the first time in the past year. This was followed by exports that were still weak and delays in shipping goods.

The S&P Global report also shows that manufacturers voted to slightly reduce their purchase activity in July marking the first drop since August 2021. The volume of staff arrays was also reduced by a sharpest drop of nearly three3 years. There have been many reports that employee contracts have not been renewed.

Meanwhile, input price inflation decreased in July, although it was still high. The general increase in raw material prices coupled with poor exchange rates boosted inflation costs during the latest survey period.

The producer responded by increasing the maximum cost for 3 months. In the next 12 months, confidence about the future has reached its highest level since February. The company believes the sales volume will improve and market conditions will strengthen in the coming year.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Friday, August 2, 2024, in the price range of IDR 16,180 - IDR 16,260 per US dollar.