Rupiah Potentially Sluggish Amid Expectations of Lower Interest Rates

JAKARTA - The rupiah exchange rate in trading on Tuesday, February 20 2024 is expected to weaken again against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Monday 19 February, the spot rupiah exchange rate closed down 0.05 percent at IDR 15,631 per US dollar. Meanwhile, the Jisdor rupiah exchange rate closed up 0.15 percent to a price level of IDR 15,630 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi said that the increase in producer prices reported by the Department of Manpower was the largest in the last five months and followed a report on consumer prices that were hotter than expected on Tuesday last month.

Additionally, data showed US producer price index inflation grew more than expected in January. The figures, which came just days after stronger-than-expected consumer price index inflation data, had traders increasingly pricing in the possibility of an early interest rate cut by the Federal Reserve this year.

"Fed funds futures estimate there is only a 10.5 percent chance of an interest rate cut in March and a 33.7 percent chance of easing in May, according to the FedWatch Tool from CME Group," he said in a statement quoted Monday, February 19.

Ibrahim said at the beginning of the year, the possibility that the Fed would lower interest rates in March was 79 percent.

In Asia, Chinese markets restarted trading cautiously, as traders waited to see whether increased spending over the week-long Lunar New Year holiday would persist in the coming weeks.

Additionally, the central bank is also expected to keep its benchmark lending rate unchanged on Tuesday, leaving interest rates at a record low.

From an internal perspective, the market continues to observe the results of the Bank Indonesia (BI) Retail Sales Survey indicating that retail sales performance in January 2024 is predicted to increase on an annual basis, but contract on a monthly basis.

This is reflected in the IPR (real sales index) for January 2024 which was recorded at 216.0 or an annual growth of 3.7 percent yoy.

This increase was driven by growth in the majority of groups, especially the other goods group, especially in the clothing subgroup, at 15.4 percent yoy.

Furthermore, followed by the Other household equipment group 5.4 percent yoy, and the Food, Beverage and Tobacco group 5.3 percent yoy.

Meanwhile, the Information and Communication Equipment Group experienced improvement even though it was still in the contraction phase of 21.8 percent yoy.