Rupiah Predicted to Strengthen After The Fed Signals Interest Rate Hikes Completed

Illustration (Photo: Doc. Antara)

JAKARTA - The rupiah exchange rate on Thursday 21 December 2023 is expected to strengthen again amidst the Fed indicating that the phase of increasing interest rates in 2023 has ended and will reduce interest rates in 2024.

Quoting Bloomberg, on the Rupiah exchange rate on Wednesday 20 December, the spot rupiah exchange rate weakened slightly by 0.03 percent to IDR 15,511 per US dollar. Meanwhile, the Jisdor rupiah exchange rate closed slightly down 0.04 percent to a price level of IDR 15,512 per US dollar.

Director of PT. Profit Forexindo Berjangka Ibrahim Assuaibi said that the Fed indicated that it had finished raising interest rates and would lower interest rates in 2024.

The move triggered a sharp weakening of the dollar, and increased speculation about when the central bank would start cutting interest rates.

Goldman Sachs estimates there will be five cuts in 2024, with most of them likely to come in the first half of the year.

"Fed Fund futures prices show traders estimate a chance of more than 67 percent for a 25 basis point cut in March 2024. The central bank is also expected to cut interest rates further in April and May," he explained in his official statement Thursday, December 21.

But Fed officials caution that this trade is still risky, especially if inflation remains sticky and requires higher interest rate policies for a longer period of time from the Fed.

Traders also largely ignored warnings from Fed officials that enthusiasm for an early rate cut was overblown, with continued declines in the dollar and government bond yields indicating growing confidence that rates could start to fall in March 2024.

Money circulation in a broad sense (M2) is projected to increase quite significantly at the 2024 democratic party.

During the four months before the election and one month after the election, the M2 trend since the 2004 election has always been increasing.

M2 in the 2004 election increased by IDR 14.8 trillion. Meanwhile, in the 2009 election, M2 increased by IDR 82.7 trillion. Then in the 2014 presidential election, M2's position increased to IDR 165.5 trillion.

Meanwhile, in 2019 it rose to IDR 189.7 trillion. This means that, if according to projections, money circulating in the 2024 election will rise higher than before, reaching at least IDR 219.7 trillion.

For this reason, increasing money circulation can encourage people's shopping activities and encourage economic growth.

Currently, Indonesia is facing the longest and the largest election, it is hoped that money circulation will be even higher, this is politically driven for consumption, so that the impact on economic growth in the fourth quarter of 2023 could be above 5 percent.

Looking at Bank Indonesia (BI) data as of October 2023 or four months before the 2024 Election, the M2 position in October 2023 was recorded at IDR 8,505.4 trillion or grew 3.4 percent on an annual basis (year on year/yoy).

Ibrahim estimates that the rupiah will fluctuate but close higher in trading on Thursday, December 21 in the price range of IDR 15,490- IDR 15,550 per US dollar.