Rupiah Predicted to Weak Again Driven by Expectations of the Fed's Interest Rate Cut

Illustration. (Photo: Doc. Antara)

JAKARTA - The rupiah exchange rate in trading on Tuesday, January 16, 2024 is expected to fluctuate again but will close lower against the United States (US) dollar driven by market expectations that the Fed will reduce interest rates more quickly.

Quoting Bloomberg, on Monday 15 January, the Rupiah spot exchange rate weakened slightly by 0.03 percent to IDR 15,555 per US dollar. Meanwhile, the Jisdor rupiah exchange rate closed slightly higher by 0.03 percent to a price level of IDR 15,555 per US dollar.

Director of PT Laba Forexindo Berjangka Ibrahim Assuaibi said that the market still maintains their expectations of an early interest rate cut by the Federal Reserve. The CME Fedwatch tool shows traders are pricing in a 70 percent chance of a 25 basis point rate cut in March, up from a 64 percent chance seen last week.

Bets against an early rate cut were strengthened by data on Friday, which showed producer price index inflation fell more than expected in December. But the report was preceded by data showing a larger-than-expected rise in CPI inflation that month.

"Focus now turns to speeches by Fed officials this week, which are expected to provide more clues about the bank's plans to cut interest rates this year. US retail sales data is also due later this week, and is expected to factor into the outlook inflation in the country," he said in his statement quoted Tuesday, January 16.

From an internal perspective, Indonesia's Trade Balance is estimated to still record a surplus at the end of 2023. However, it will shrink slightly compared to the previous month. Meanwhile, the trade balance surplus in December 2023 is predicted to be 1.83 billion US dollars.

"This means that the trade balance surplus in December 2023 is predicted to be lower than the surplus in November 2023 which was valued at 2.41 billion US dollars. This marks the fourth decline in a row," he explained.

Anticipate a decline in exports due to weak demand, especially from trading partner countries because global trade activity is still weak. Meanwhile, imports have begun to show improvements in imports of raw materials and consumption due to the strong domestic economy.

Exports are expected to contract by 8.38 percent yoy in December, when the previous month also contracted 8.56 percent yoy. Meanwhile, imports are predicted to grow 0.68 percent yoy, compared to 3.29 percent yoy in the previous month.

Trade performance remains weak in December 2023, as demand remains stagnant due to the weak global economy. Therefore, cumulatively in 2023, it is estimated that Indonesia's total exports could reach 258 billion US dollars or down 11.53 percent yoy.

Meanwhile, imports amounted to 222 billion US dollars or fell 6.2 percent yoy. Thus, the trade balance is estimated to still have a surplus of 35.5 billion US dollars.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, January 16 in the price range of IDR 15,530-IDR 15,590 per US dollar.