The Rupiah Has the Potential to Strengthen when the US Dollar is Sluggish

US dollar (Photo: dock unsplash)

JAKARTA - The rupiah exchange rate on Thursday 7 December 2023 is expected to strengthen amid the weakening of the United States (US) dollar.

Quoting Bloomberg, on the Rupiah exchange rate on Wednesday 6 December, the spot rupiah exchange rate strengthened 0.07 percent to IDR 15,494 per US dollar. Meanwhile, the Jisdor rupiah exchange rate closed stagnant at the price level of IDR 15,504 per US dollar.

PT Laba Forexindo Berjangka Director Ibrahim Assuaibi said JOLTs data showed job vacancies in the US declined in October, raising hopes of a prolonged cooling in the labor market that could limit room for the Fed to keep interest rates higher for longer.

"While markets are confident that the Fed will not raise interest rates again, uncertainty regarding exactly when the central bank will start lowering interest rates in 2024 remains a major factor in uncertainty. This notion has given the dollar some support in recent sessions, as has the anticipation of nonfarm readings payrolls on Friday," he explained in his official statement Thursday, December 7.

Ibrahim said the US economy remains resilient, so it is expected that inflation will remain stable, while the labor market may also take longer to cool down than expected.

Traders estimate a more than 50 percent chance that the Fed will lower interest rates as early as March 2024. But the central bank has largely maintained its higher rhetoric for the long term.

Domestically, the inflation rate in December 2023 is expected to increase compared to the previous month. One of the causes is the Christmas and New Year events, so cyclically inflation at the end of the year tends to rise, especially for food products.

Therefore, the Government is asked to be wary of food inflation, especially because Indonesia has just experienced an El Nino storm which could reduce food supplies. Apart from that, the government is also asked to be wary of inflation due to increasing demand amidst the campaign towards the general election in 2024.

The social assistance (bansos) that will be disbursed by the government is considered unable to significantly overcome inflation, but can reduce the impact of inflation on the purchasing power of low-income people. When inflation hits or erodes people's purchasing power, the government is also asked to ensure that social assistance is distributed well and on target to lower levels of society.

Bank Indonesia said inflation was maintained as a result of consistent monetary policy and close synergy between Bank Indonesia and the central government and regional governments through the Central and Regional Inflation Control Teams.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading on Thursday, December 7 in the price range of IDR 15,460- IDR 15,550 per US dollar.