Rupiah Potentially Weakening Amid The Issues Of Cutting US Interest Rates

Rupiah (Photo: Antara)

JAKARTA - The rupiah exchange rate in Friday, January 5, 2024, is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, January 4, the rupiah spot exchange rate fell 0.06 percent to Rp15,491 per US dollar. Meanwhile, Jisdor's rupiah exchange rate closed lower by 0.19 percent to a price level of Rp15,525 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi conveyed the minutes of a December Fed policy meeting released on Wednesday showing officials confident that inflation has been controlled and worried about the central bank's monetary policy risks that are too restrictive to the economy.

"However, there are no definite clues regarding when the Fed will start lowering its interest rates, and policymakers are still seeing the need for interest rate restrictions for some time to come," he explained in his official statement, quoted Thursday, January 4.

Additionally, US manufacturing data contracted further in December, despite its slowing rate, while US job vacancies fell for the third month in a row in November, indicating reduced labor market conditions.

Recent data showing the weakening of the US economy continue to support speculation of the Fed's decline in interest rates this year in line with inflation's control.

However, the increasing expectations of the soft-landing scenario in the country with the largest economy in the world have divided traders on speed and easing scale from the US central bank.

Ibrahim said the current market assessment suggests about 72 percent of the likelihood that the Fed will start lowering its interest rates in March, compared to 90 percent chances last week, according to the CME FedWatch.

"The closely watched US nonfarm payroll report will be released on Friday, which is likely to provide further clarity on how much space the Fed has to lower interest rates," he explained.

From an internal point of view, many predict that the government's debt in 2024 will reach IDR 8,600 trillion. This can be seen from the amount of due debt and interest expense of debt, some of which will be paid with the issuance of new debt. In addition, government debt was recorded at IDR 8,041 trillion as of November 2023.

However, the government seems comfortable with 90 percent of debt in the form of state securities (SBN) with relatively high interest rates in the market. In fact, the rising debt interest expense will cause the narrowing of fiscal space. Not all debts are used for productive spending.

Interest payments and principal debt due through the issuance of new debt prove that debt is also used for non-productive purposes.

Previously it was reported, the Director General of Financing and Risk Management of the Ministry of Finance, opened his voice about the government's debt which reached Rp. 8,041 trillion as of November 2023.

Various debt portfolio indicators show debt performance is better than in previous years. For example, the ratio of debt to gross domestic product aka debt to GDP ratio has increased significantly.

The debt-to-GDP ratio as of the end of November was recorded at 38.11 percent. This figure is down from the position in December 2022 which was 39.7 percent.

Meanwhile, in terms of risk indicators of currency, aka currency risk, the proportion of Indonesia's debt in foreign currency (foreign currency) also continues to decline. Suminto noted, in 2019 before the pandemic, the outstanding debt of the Indonesian government in foreign currency was at 37.9 percent.

Ibrahim estimates that the rupiah will fluctuate but closed lower on Friday, January 5 trading in the price range of IDR 15,470- IDR 15,550 per US dollar.