Rupiah Potentially Continues Weakening Impacts Of Fed Official Comments

Rupiah (Photo: Antara)

JAKARTA - The rupiah exchange rate in trading Wednesday, February 28, 2024 is expected to weaken again against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Tuesday 27 February, the rupiah spot exchange rate was closed down 0.10 percent Rp15,646 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) of Bank Indonesia (BI) closed lower by 0.12 percent to a price level of Rp15,655 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi conveyed sentiment coming from several comments from Federal Reserve officials signaling that the central bank would not rush to start relaxing its policies due to high inflation. The dollar remains near its three-month high for the idea

"The current focus of PCE price index data, which is the size of the Fed's choice of inflation, will be released on Thursday, and is expected to show stagnant inflation, thus providing a slight impetus for the Fed to consider lower interest rates," he said in his statement quoted Wednesday, February 28.

Previously, fourth-quarter GDP data was expected to show a slight slowdown in the US economy, but it did not reach a point where the Fed would be pushed to ease policies.

In addition, the consumer price index inflation is slightly higher than expected for January. Although this figure still shows a decline in inflation, it takes into account the increased expectations that the Bank of Japan will raise interest rates as soon as April.

BOJ is expected to end controlling its negative interest rate yields and policies this year, as high inflation has the potential to give the central bank more push to do so as soon as possible.

However, the deteriorating economic condition in Japan has the potential to delay BOJ's plans, especially as the economy unexpectedly fell into recession in the fourth quarter.

From an internal perspective, market participants continue to observe the development of government debt which continues to soar. Based on data from the Ministry of Finance (Kemenkeu) noted that the government's debt position in January 2024 reached IDR 8,253.09 trillion, equivalent to 38.75 percent of gross domestic product (GDP). The amount of debt in early 2024 again set the highest record of all time.

The debt position at the beginning of the year increased again when compared to the position at the end of December 2023 which amounted to IDR 8,114.69 trillion. The debt ratio recorded in January 2024 is still below the safe limit of 60 percent of GDP in accordance with Law no. 17/2003 on State Finance and better than what has been established through the 2024-2027 Medium-Term Debt Management Strategy in the range of 40 percent.

If detailed, the majority of government debt in January 2024 was recorded to come from domestic debt with a proportion of 71.60 percent. Meanwhile, based on the instrument, the composition of government debt is mostly in the form of SBN which reaches 88.19 percent.

Furthermore, as of the end of January 2024, financial institutions hold around 45.9 percent of domestic SBN ownership, consisting of 27.4 percent of banks and 18.5 percent of insurance and pension funds. BI's domestic SBN ownership was recorded at around 18.7 percent which was used as an instrument for monetary management.

Meanwhile, foreigners are recorded to only have a domestic SBN of around 14.8 percent, including ownership by the government and foreign central banks. The Ministry of Finance also said that the ownership of individual investors in domestic SBN has continued to increase since 2019 which is only below 3 percent to 7.7 percent as of the end of January 2024.

Ibrahim estimates that the rupiah will fluctuate but closed lower on Wednesday, February 28 trading in the price range of IDR 15,630- IDR 15,690 per US dollar.