Rupiah Potentially Strengthening Driven By Further Fed Rate Scarcity Expetition

JAKARTA - The rupiah exchange rate in trading Thursday, September 26, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, September 25, 2024, the rupiah exchange rate on the spot market closed up 0.56 percent at the level of Rp. 15,102 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed higher by 0.62 percent to a price level of Rp. 15,092 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said a number of Fed speakers would provide further signal about interest rates this week, especially Jerome Powell's speech on Thursday.

"The PCE price index data for the Fed's preferred inflation gauge will be released on Friday and is also expected to be a factor in the central bank's plans for interest rates," he said in his statement, quoted Thursday, September 26.

Previously, the euro zone business activity contracted sharply this month. The decline appeared widespread with Germany, Europe's largest economy, experiencing a deeper decline.

The European Central Bank cut interest rates for the second time this year earlier this month last week, and further signs of economic downturn could increase the chances of cutting interest rates again in October.

From a domestic perspective, Bank Indonesia (BI) has decided to cut the benchmark interest rate (BI Rate) at the Septembr 2024 Board of Governors Meeting (RDG) by 25 basis points (bps) to 6 percent. BI officials emphasized that the decision was a form of monetary policy transformation from being pro-stability to being pro-growth.

Meanwhile, the reason for the reduction in interest rates is the increasingly clear probability of lowering the US central bank interest rate or the Federal Funds Rate (FFR) this month. So confidently, although the FFR had not dropped when the BI RDG took place, BI officials decided to cut the BI Rate first.

Then, the impact of the FFR cut probability this month is believed to have an impact on the stability of the rupiah exchange rate. Thus, BI's previous reason for maintaining interest rates was because the stability of the rupiah exchange rate was diverted. Stable inflation, and is estimated to move in the range of 2.5+-1 percent in 2024 and 2025.

Ibrahim explained that the most important thing is the role of monetary policy in economic growth. Previously, BI's policies that driven economic growth were macroprudential and payment systems, this time also driven by monetary policy.

"With the push of monetary policy in the form of cutting the BI Rate, it is hoped that it can encourage further credit in banks, so as to encourage financing, and ultimately support sustainable economic growth," he said.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading on Thursday, September 26, 2024, in the price range of IDR 15,000 - IDR 15,120 per US dollar.