US Inflation Is The Focus, Potentially Weakening Rupiah

Rupiah (photo: dock. Antara)

JAKARTA - The rupiah exchange rate in trading Monday, March 4, 2024, is expected to weaken again against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Friday, March 1, the rupiah spot exchange rate was closed up 0.10 percent Rp15,704 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) of Bank Indonesia (BI) closed up 0.12 percent to a price level of Rp15,696 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi said PCE data placed the decline in interest rates in June as a focus, but there is still a risk that PCE price index data on the Fed's choice of inflation fell as expected in January, data showed on Thursday.

"This figure triggers the hope that inflation will fall in the coming months and provides sufficient encouragement for the Fed to lower interest rates in June," he said in a statement quoted Monday, March 4.

But the CME Fedwatch tool showed traders only slightly increased their expectations of lower interest rates in June, while betting on maintaining interest rates remained stable.

A number of Fed officials have also warned that high inflation will make the central bank in no hurry to start loosening its policy indicating that future rising inflation is likely to reduce the prospect of lowering interest rates in June.

From an internal perspective, the Central Statistics Agency (BPS) noted that in February 2024 inflation was 0.37 percent on a monthly basis (mtm) with an increase in the Consumer Price Index (IHK) of 105.58.

Meanwhile, the year-on-year inflation rate (February 2024 to February 2023) was recorded at 2.75 percent and the inflation rate for the calendar year (February 2024 to December 2023) was 0.41 percent.

The monthly inflation rate in February 2024 is higher than the previous month and the same month last year. The largest contributor to inflation in January 2024 based on the expenditure group was food, beverages and tobacco with an inflation of 1.00 percent mtm with a share of 0.29 percent.

With the largest contributor to inflation, namely rice with an inflationary contribution of 0.21 percent, red chilies 0.09 percent, chicken eggs 0.04 percent, and chicken meat commodities 0.02 percent.

The commodities that contributed to deflation were shallots with a deflation of 0.04 percent, tomatoes 0.03 percent, and cayenne pepper 0.02 percent.

Furthermore, according to the region, there are 26 provinces experiencing inflation, while the other 12 provinces experienced deflation. The highest inflation in February 2024 occurred in West Sumatra Province at 1.17 percent. While the deepest deflation occurred in Maluku Province at 1.19 percent.

Ibrahim estimates that the rupiah will fluctuate but closed lower in trading March 4 in the price range of IDR 15,690 - IDR 15,740 per US dollar.