The Rupiah Is Predicted To Continue Weaken Due To Expectations For The Cut Of US Interest Rates In 2025

JAKARTA - The rupiah exchange rate in trading Friday, December 20, 2024 is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, on Thursday, December 19, 2024, the rupiah spot exchange closed down 1.34 percent to the level of Rp. 16,312 per US dollar.

Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed down 1.09 percent to a price level of IDR 16,277 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said that Federal Reserve officials indicated they might stop cutting interest rates in the future given the stable labor market and inflation.

"The interest rate is expected to remain high for a longer period of time after the cuts on Wednesday," he said in his statement, quoted Friday, December 20.

Ibrahim said the market had ruled out possible cuts in January and now expects only two more cuts by 2025, compared to previous expectations of four.

Additionally, Fed Chairman Jerome Powell said further cuts depend on progress in curbing persistent inflation, reflecting policymakers' adjustment to potential economic shifts under Donald Trump's upcoming administration.

Meanwhile, from within the country, Ibrahim said that giving various incentives was not enough to reduce the impact of increasing VAT to 12 percent.

According to him, the problem that arises in the current industry is the decline in demand due to the depletion of the number of middle class which is a driving force for domestic consumption.

In addition, Ibrahim conveyed that the period of providing incentives was too short, for example only two months for a 50 percent discount on electricity rates.

Incentives provided for labor-intensive industries are also not expected to be sufficient to reduce the impact of the increase in VAT.

"The reason is, too many industrial sectors have slumped, such as the textile industry and the footwear industry," he explained.

Ibrahim emphasized that although the government provides special incentives for labor-intensive industries, the purchasing power of the people who are still weak makes the provision of incentives not much impact.

"If this condition is not handled carefully, then the increase in VAT could increase the potential for employees to be laid off," he said.

According to Ibrahim, not only incentives, but policies are also needed that can protect domestic products so that their demand does not decrease.

Based on his study, many imported goods from China are priced at half or even less than half the price of domestic products.

"I urge the government to tighten control over imported products, both legal and illegal, especially from China, so that domestic products can still compete," he said.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Friday, December 20, 2024 in the price range of IDR 16,300-IDR 16,370 per US dollar.