Decreased Expetition Of The Fed's Interest Rate Decreased, Rupiah Has The Potential To Weaken Again

Rupiah (photo: dock. Antara)

JAKARTA - The rupiah exchange rate in trading Monday, June 3, 2024 is expected to weaken again against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Friday, May 31, 2024, the rupiah spot exchange rate closed slightly higher by 0.08 percent to the level of Rp. 16,252 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed up 0.01 percent to a price level of Rp. 16,251 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi said the US economy grew at an annual rate of 1.3 percent from January to March, down from an initial estimate of 1.6 percent after the downward revision of consumer spending.

"The decline in the first quarter's growth rating follows weak retail sales data and equipment spending, which contributed to the reduced estimates of the Federal Reserve's interest rate reduction," he explained in his official statement, quoted Monday, June 3.

Ibrahim said a two-day spike of 15 basis points above 4.6 percent for long-term Treasury returns had helped push the dollar to a two-week high on Wednesday by increasing US debt withdrawals.

In addition, several Federal Reserve officials have warned in recent weeks that the central bank is less confident about starting to cut interest rates, amid high inflation.

In addition, geopolitical tension in the Middle East continues to increase after Israeli troops control the buffer zone along the border between the Gaza Strip and Egypt. Thus, Israel has effective authority over the entire Palestinian land border.

Ibrahim conveyed that expectations for the Fed's decline in interest rates this year have eased amid signs of stagnant inflation, the latest is a surprising increase in consumer sentiment released on Tuesday.

From an internal point of view, the global problem due to geopolitical tensions in the central east and Europe which continues to heat up has made the global economy problematic, as evidenced by the low decline in US Gross Domestic Product (GDP) in the first quarter of 2024.

According to Ibrahim, this will have an impact on the Indonesian economy in the Second Quarter of 2024. In order to increase public consumption again, the government must again provide stimulus in the form of Social Assistance (Bansos) and Direct Cash Assistance (BLT), so that the deposit from the increase in prices can be offset with this assistance even though it is only 10 kg per family.

"This year's rice aid was originally planned for only 2 stages during January - June 2024. This means that if the extension of rice aid is continued until stage 3, then the free rice distribution period of 10 kilograms per month will take place from June to September 2024," he explained.

According to Ibrahim Bank Indonesia, it must be even more alert in intervening in the Valas market and Bonds in the DNDF trade. If the intervention is marketed less strongly, then BI must again raise the benchmark interest rate in June 2024 by 25 bps which aims to stabilize the rupiah currency.

"BI still has room to increase interest rates by 50 bps at 6.75 percent. If global conditions continue to heat up, world oil prices soar and the rupiah continues to weaken," he said.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Monday, June 3, 2024, in the price range of Rp. 16,210 - Rp. 16,300 per US dollar.