The Fed Denies Speculation About Lowering Interest Rates, Rupiah Projected To Strengthen

Rupiah and US Dollars (Photo: dock. Antara)

JAKARTA - The rupiah exchange rate on Wednesday, December 20, 2023 is expected to move again higher amid efforts by several Fed officials to reduce speculation of lower interest rates in the market.

Quoting Bloomberg, the Rupiah exchange rate on Tuesday, December 19, the rupiah spot exchange rate slightly strengthened 0.03 percent to Rp15,506 per US dollar. Meanwhile, Jisdor's rupiah exchange rate closed slightly up 0.06 percent to a price level of Rp15,506 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said that Fed officials are trying to reduce speculation of lower interest rates and say that market enthusiasm for lower interest rates is unfounded in the near future, and high inflation can make monetary conditions more stringent.

Chicago Fed President Austan Goolsbee said he was confused by how the market reacted to last week's Fed meeting.

Meanwhile, Fed president Clevelandwas Mester said that the Fed did not consider lower interest rates, but more on how long the policy had to remain tight to return inflation to its target of 2 percent.

"Their comments are somewhat contrary to the dovish views of the Fed during its final policy meeting this year, where the central bank said it had finished raising interest rates and would consider a decline in 2024," he explained in his official statement Wednesday December 20.

In addition, the market also maintains their stakes on lower interest rates early, with Fed Fund futures showing nearly 63 percent opportunities for a 25-base-point drop in interest rates in March 2024.

Furthermore, in order to maintain economic growth amid both global and domestic uncertainty, the 2024 presidential election (Pilpres) is expected to take place in one turn and will have a positive impact on the Indonesian economy and the one round presidential election is also responded positively to by the market.

The trend of economic growth in 5 percent can be higher if the money in circulation gets bigger. The breakthrough in financial policy in this new government is very important.

In addition to accelerating economic growth, the one-round presidential election can also accelerate ongoing government programs.

In addition, Ibrahim said that the 2024 presidential election one round could save costs/budget of up to Rp17 trillion. The money can later be used for more urgent needs, including the provision of subsidies in the form of Social Assistance (Bansos), Subsidized Fuel, Direct Cash Assistance (BLT) and others to people in need.

Then, politically, one round of elections can maintain domestic stability and also minimize the threat of polarization in society. Concerns about the threat of polarization are getting bigger if the second round presents a battle between Parbowo Subianto versus Anies Baswedan. Primodial issues and religious issues (SARA) will emerge and that has happened at the time of the DKI Jakarta gubernatorial election.

The Central Statistics Agency noted that Indonesia's economic growth until September 2023 was always in the range of 5 percent. In the first quarter, Indonesia's economic growth was recorded at 5.03 percent.

Then in the second quarter it increased to 5.17 percent. In the following period (July-September) or the third quarter, the Indonesian economy slightly slowed down to 4.94 percent.

Ibrahim estimates that the rupiah will fluctuate but close higher in Wednesday's trading on December 20 in the price range of IDR 15,490- IDR 15,540 per US dollar.