The Rupiah Has the Potential to Strengthen, This is the Cause

Illustration (Photo: Doc. Antara)

JAKARTA - The rupiah exchange rate on Tuesday, December 5, 2023 is expected to move stronger, influenced by external and internal sentiment.

Quoting Bloomberg, the Rupiah exchange rate on Monday 4 December, the spot rupiah exchange rate strengthened 0.14 percent to IDR 15,463 per US dollar.

Meanwhile, the Jisdor rupiah exchange rate strengthened 0.50 percent daily to a price level of IDR 15,446 per US dollar.

PT.Laba Forexindo Berjangka Director Ibrahim Assuaibi said the dollar was stable near its lowest level in three months, betting on a Fed interest rate cut.

"The dollar index and dollar index futures rose slightly on Monday, but remain within range of lows last seen in early August," he explained in his official statement Tuesday, December 5.

Fed Chair Jerome Powell struck a less hawkish tone in two speeches on Friday, with markets betting that his comments about striking a balance between tight monetary policy and a soft economic landing signaled a definitive end to the Fed's rate hike cycle.

Although Powell still warned that interest rates will remain higher for a longer period of time, traders increased their expectations for a less hawkish Fed policy in the coming months.

Markets are pricing in a more than 90 percent chance that the Fed will hold interest rates when it meets later in December, and a more than 60 percent chance that the bank will start cutting rates in March 2024.

The forecast largely depends on inflation and the labor market, with nonfarm payrolls data released on Friday providing more clues.

However, the Fed's less hawkish policy outlook encouraged Asian currencies to strengthen until November, while the dollar fell.

Domestically, economists predict that the consumer price index (CPI) in December 2023 will be at 116.90, or experience inflation of 2.92 percent annually (yoy) or 0.71 percent monthly (mtm).

This projection is in line with the trend of increasing inflation at the end of the year. Mainly driven by increased demand due to National Religious Holidays, year-end holidays, and campaigns ahead of the General Election (Pemilu).

In general, the domestic inflation rate is predicted to remain within the target range.

Bank Indonesia (BI) is predicted to continue holding its benchmark interest rate in December 2023, namely at 6 percent, in line with the core inflation rate which continues to decline.

A number of potential risks still need to be considered, including those related to imported inflation as a result of the weakening Rupiah exchange rate and the risk of rising global energy and food prices.

The synergy between Bank Indonesia and the government in controlling inflation also needs to continue to be strengthened, especially to mitigate the spike in inflation due to VF.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, December 5 in the price range of IDR 15,430- IDR 15,490 per US dollar.