Rupiah Potentially Continuing Weakening Driven To Cut US Interest Rates

JAKARTA - The rupiah exchange rate in trading 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 the level of Rp. 15,655 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed slightly higher by 0.06 percent to a price level of Rp. 15,671 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said investors were considering the prospect of US interest rates after a strong work report last week dashed hopes for a large drop in interest rates, while rising tensions in the Middle East undermined risk sentiment.

"The traders have drastically changed the expectations of their monetary easing from the Federal Reserve this year. The market no longer fully expects a decline in interest rates in November and estimates an 86 percent chance for a 25-base point," he said in a statement, quoted Wednesday, October 9.

According to the CME FedWatch tool, only 50 bps of easing was estimated in December, down from more than 70 bps a week earlier.

In addition, Ibrahim said that the yields from US government bonds of 10 years of reference remained above 4 percent during Asian trading hours, after touching the level on Monday for the first time in two months as traders reduced bets on very large interest rates cuts.

The focus of investors this week is on inflation reports that will be released on Thursday as well as Friday's September Fed meeting minutes which are scheduled to be released on Wednesday.

From a domestic perspective, the World Bank or World Bank has raised Indonesia's economic growth projections for 2024 and 2025, which are 5 percent and 5.1 percent, respectively.

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

In a report by the October 2024 edition of the East Asia and Pacific Economic Update, the World Bank sees that the East Asia and Pacific regions that are building continue to grow faster than other regions in the world, although it is still slower than before the Covid-19 pandemic.

Vice President of the World Bank for East Asia and Pacific Region Manuela V. Ferro said in general the projected growth in the region was at 4.8 percent in 2024, and slowed to 4.4 percent in 2025.

Although it is generally projected to slow down, the World Bank highlighted that Indonesia will continue to grow, supported by increased domestic consumption, recovery in exports of goods, and enthusiasm for the tourism sector.

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

In general, the World Bank's projection of Indonesia is close to the government's expectations at 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 year-on-year (year to 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 trading Wednesday, October 9, 2024, in the price range of IDR 15,640 - IDR 15,740 per US dollar.