US Inflation Still High, Rupiah Movement Potentially Weakens

Rupiah (photo: dock. Antara)

JAKARTA - The rupiah exchange rate in trading Tuesday, April 30, 2024 is expected to continue to weaken the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Monday, April 29, 2024, the rupiah spot exchange rate closed down 0.28 percent to the level of Rp. 16,255 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed lower by 0.16 percent to a price level of Rp. 16,249 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said Greenback maintains a strong rise for April after most traders ignored most of the Fed's early interest rate drop expectations.

"This bet comes on Friday after PCE price index data on the Fed's preferred inflation measure was higher than expected for March," he explained in his official statement, quoted Tuesday, April 30.

According to Ibrahim, the focus this week is on Fed meetings. The central bank is expected to keep interest rates stable and potentially offer hawkish views, given the recent stiff US inflation.

"The prospect of higher interest rates for a longer period is a bad sign for the Asian market an idea that puts most of the regional currencies at a tight range on Monday," he said.

Previously, data released on Thursday showed that US gross domestic product grew at an annual rate of 1.6 percent in the January-March period, much slower than expected by 2.4 percent.

Despite this, the report also shows that inflation as measured by the core's private consumption expenditure price index rose 3.7 percent in the first quarter, beating the estimated 3.4 percent increase.

From an internal point of view, Bank Indonesia has decided to raise the benchmark interest rate (BI rate) by 25 bps to 6.25 percent, in order to strengthen the stability of the rupiah exchange rate against the US dollar.

However, BI still estimates that economic growth in 2024 will still be in the range of 4.7-5.5 percent. Meanwhile, national economic growth in the first and second quarters of 2024 is estimated to be higher than in the fourth quarter of 2023.

There are some impacts from the policy rate being relatively safe, BI has an instrumented set of policies. BI's stance is not only seen from monetary policy, why are our interest rates optimistic? Because the exchange rate is to strengthen stability, the policy rate is to stabilize the exchange rate.

In addition, the increase in the BI Rate was deliberately carried out as a pre-emptive anticipatory measure to prevent unwanted things, as well as a forward looking policy to ensure inflation remains on target of 2.5:1 percent in 2024 and 2025 in line with the pro-stability monetary policy stance.

Ibrahim conveyed that optimism for economic growth is also in line with the strong domestic demand from household consumption throughout Ramadan and Eid al-Fitr 1445 Hijri. It is hoped that the push from domestic demand will still be strong, although historically it is relatively lower but there have been improvements.

On the other hand, building investment itself is higher supported by continued demand for National Strategic Projects (PSN) in a number of areas and the development of private property as a positive impact of government incentives so that it will boost the economy in the future.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, April 30, 2024 in the price range of IDR 16,230 - IDR 16,290 per US dollar.