Economist: The Future of the Rupiah Exchange Rate Depends Heavily on the Direction of the US-Iran Arms Ceasefire
JAKARTA - Head of Permata Bank Economist Josua Pardede assessed that the outlook for the rupiah exchange rate in the future depends heavily on the direction after the US and Iran, whether it continues to be the beginning of a reduction in conflict or only a tactical pause that risks pushing back external pressure.
"This agreement (temporary ceasefire) is still far from a settlement, the core issue of the conflict has not been resolved, and the real test remains whether ship traffic in the Strait of Hormuz really returns to normal," Joshua said, quoted by Antara, Thursday, April 9.
He added that there was even an assessment that if what happened was only a delay, oil prices tended to settle around $100 per barrel as a new foothold, not a quick return to pre-war conditions.
"I see that the news of a temporary ceasefire between the US and Iran does provide a positive cushion for the rupiah, but the impact is more as a restraint on pressure than a big driving force for strengthening," said Josua.
After the two-week US-Iranian ceasefire agreement was announced, Josua noted that Brent crude prices fell by about 16 percent to 91.70 US dollars per barrel, while West Texas Intermediate (WTI) fell by 14 percent.
Then, the dollar index weakened by around 0.6-0.7 percent, US bond yields declined, and the market reopened the opportunity for a Fed rate cut of around 60 percent by the end of the year.
For the rupiah, Josua noted, this combination of factors reduces pressure from the energy import side, dampens the impetus for the strengthening of the dollar as a safe asset, and slightly improves risk appetite for emerging market assets.
"However, before this news, the market is still very cautious. I assess that this ceasefire sentiment is not strong enough to reverse the rupiah decisively, but it is meaningful enough to prevent deeper weakening in the very short term," he said.
On the domestic side, BI in March recorded portfolio outflows of US$1.1 billion due to Middle East tensions. If the average oil price is around US$75 per barrel and the rupiah exchange rate is stable at around Rp16,750 per US dollar, Josua assesses that the room for BI interest rate cuts is practically exhausted.
Meanwhile, if the average oil price rises to 80 US dollars per barrel and the rupiah weakens to around Rp17,000 per US dollar, the direction of monetary policy could even shift to be tighter.
In a scenario of prolonged geopolitical tensions, Josua considers the most realistic scenario not to be a sharp strengthening of the rupiah, but to remain weak but manageable in the range of Rp16,900-17,100 per US dollar.
"There is still room to strengthen slightly below Rp17 thousand, but it depends very much on the actual evidence that energy shipments recover, oil prices do not rebound, and foreign outflows do not get bigger again," said Josua.
The rupiah exchange rate at the close of trading on Wednesday, April 8, strengthened 93 points or 0.54 percent to Rp17,012 per US dollar from the previous close at the level of Rp17,105 per US dollar.
The Bank Indonesia Jakarta Interbank Spot Dollar Rate (JISDOR) also moved to strengthen to the level of Rp17,009 per US dollar from the previous Rp17,092 per US dollar.