Economists Predict Indonesian Foreign Exchange Reserves Will Drop By The End Of 2024

Illustration (Photo: Doc. ANTARA)

JAKARTA - Bank Permata economist Josua Pardede estimates the position of foreign exchange reserves will be US$ 140 billion-142 billion by the end of 2024 or down compared to the end of 2023 which amounted to US$ 146.4 billion.

Even so, Josua said that this year's foreign exchange reserves will still have the opportunity to fall, due to the risk of a higher policy interest rate for the longer.

"We are still anticipating the risk of a higher for longer policy interest rate and, as a result, we see the potential decline in foreign exchange reserves in 2024," he explained to VOI, Friday, June 7.

Josua said that risks related to global uncertainty will remain a major concern during the first semester of 2024, especially related to risk-off sentiment amid a higher for-longer policy interest rate.

According to Josua, this can limit the flow of foreign funds into Indonesia to a certain extent. In addition, the decline in the trade surplus due to the normalization of commodity prices and the weakening of global demand, coupled with Indonesia's strong domestic demand, will pose a risk of widening the current account deficit.

In addition, Josua explained that seasonal factors such as coupon payments and dividends to non-residents, which usually peak in the second quarter, also contribute to widening the current account deficit.

According to Josua, these factors are expected to reduce foreign exchange reserves in the first semester of 2024.

Meanwhile, in the second semester of 2024, these risks are expected to subside.

"We are still anticipating the potential decline in the Fed Funds Rate (FFR) in December," he said.

Josua said that the reduction in interest rates could increase risk-on sentiment, which has the potential to increase capital flow to Indonesia.

"Therefore, we estimate a slight increase in Indonesia's foreign exchange reserves towards the end of 2024," he explained.

As a result, Josua estimates that the rupiah exchange rate will fall between IDR 15,800 per US dollar to 16,200 per US dollar by the end of 2024, appreciated from IDR 15,397 per US dollar by the end of 2023.