Rupiah Potentially Strengthening Driven By Positive Signal For Cutting US Interest Rates

JAKARTA - The rupiah exchange rate in trading Friday, December 6, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, December 5, 2024, the rupiah exchange rate on the spot market closed higher by 0.47 percent at the level of Rp15,862 per US dollar.

Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed up 0.40 percent to a price level of IDR 15,892 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said regional investors also felt a little relieved from the speech of Federal Reserve US Chairman Jerome Powell at a New York Times event.

"Powell signaled the US economic power and did not underestimate expectations for lower interest rates in December, although he hinted at a more cautious approach to easing in the future," he said in a statement, quoted Friday, December 6.

In addition, Ibrahim said investors remain vigilant because Asia faces increasing geopolitical risks, including the specter of US trade rates under President Donald Trump's upcoming administration.

According to Ibrahim, the focus this week is on major non-farm paryroll data in the US for further clarity on Fed interest rate prospects.

Meanwhile, from within the country, economists assess that the urgency of increasing the VAT rate of 12 percent in 2025 will only be carried out because it is contained in the Law on Harmonization of Tax Regulations signed in 2021.

The government's desire to increase state revenue through the increase in VAT is feared to hit people's purchasing power at this time.

The spirit of increasing VAT in Law (UU) No.7/2021 which was signed three years ago is different from the current condition.

At that time, fiscal deficits were allowed above 3 percent and had an impact on large enough financing. Through the spirit to increase state revenue, VAT rose to 11 percent.

Seeing the realization of the 2024 State Budget deficit which reached 1.37 percent of GDP or equivalent to IDR 309.2 trillion as of October 2024.

Economists believe the deficit will be lower than the target of IDR 522.8 trillion or 2.29 percent of GDP.

This means that there will be additional potential for the Budget Balance (SAL) which can close the APBN deficit next year without using debt.

Economists think there is no urgency to implement 12 percent VAT next year, except for the mandate of the HPP Law.

Meanwhile, these regulations can actually be intervened through the issuance of government regulations in lieu of laws (Perppu).

As in Law no. 17/2003 on State Finance which does not allow a deficit to exceed 3 percent.

As in Law no. 17/2003 on State Finance which does not allow the deficit to exceed 3 percent. However, during the COVID-19 pandemic, the government issued a Perppu which later became Law No. 2/2020 by allowing the deficit to exceed the initial provisions.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Friday, December 6, 2024, in the price range of IDR 15,850 - IDR 15,910 per US dollar.