Rupiah is Potentially to Continue Weakening Due to Pressure from US Interest Rate Cut

JAKARTA - The rupiah exchange rate on Wednesday, October 9, 2024, is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Tuesday, October 8, 2024, the rupiah exchange rate on the spot market closed up 0.20 percent at Rp15,655 per US dollar. Meanwhile, the rupiah exchange rate at Bank Indonesia (BI) Jakarta Interbank Spot Dollar Rate (Jisdor) closed slightly higher by 0.06 percent to Rp15,671 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said investors were considering the outlook for US interest rates after last week's strong jobs report dashed hopes for a major rate cut, while rising tensions in the Middle East damaged risk sentiment.

"Traders have drastically changed their expectations of monetary easing from the Federal Reserve this year. The market is no longer fully pricing in a rate cut in November and is estimating an 86 percent chance of a 25 basis point cut," he said in his statement, quoted on Wednesday, October 9.

Only 50 bps of easing is expected in December, down from more than 70 bps a week earlier, according to the CME FedWatch tool.

Also, Ibrahim said the benchmark 10-year U.S. Treasury yield remained above 4 percent in Asian trading hours, after touching that level on Monday for the first time in two months as traders scaled back bets on a very large rate cut.

Investors’ focus this week will be on the inflation report due on Thursday and the minutes of the Fed’s September meeting due on Wednesday.

On the domestic front, the World Bank raised its projections for Indonesia’s economic growth for 2024 and 2025 to 5 percent and 5.1 percent, respectively.

Previously, in the World Bank's estimate released last April, the international institution estimated Indonesia's economy at 4.9 percent in 2024 and 5 percent in 2025.

In the October 2024 edition of the East Asia and Pacific Economic Update, the World Bank sees the developing East Asia and Pacific region continuing to grow faster than other regions in the world, although still slower than before the Covid-19 pandemic.

World Bank Vice President for the East Asia and Pacific Region Manuela V. Ferro said that in general the growth projection in this region is at 4.8 percent in 2024, and slowing to 4.4 percent in 2025.

Although generally projected to slow, the World Bank highlighted that Indonesia will continue to grow supported by increasing domestic consumption, recovering exports of goods, and the revival of the tourism sector.

Among the major countries, in 2024 and 2025 only Indonesia is expected to grow at or above the pre-pandemic growth rate.

In general, the World Bank's projection for Indonesia is close to the government's expectations of 5.2 percent this year and next year.

Meanwhile, in the second quarter of 2024, the Central Statistics Agency (BPS) reported that Indonesia's economic growth reached 5.05 percent (year on year/YoY) and 5.08 percent on a year-to-date basis (year to year). date/YtD).

Meanwhile, the realization of gross domestic product (GDP) for the third quarter of 2024 will be announced by the Central Statistics Agency (BPS) on November 5.

Ibrahim estimates that the rupiah will fluctuate but close lower on Wednesday, October 9, 2024, in the price range of IDR 15,640 - IDR 15,740 per US dollar.