Waiting Market Signs US Policy, Potentially Weakening Rupiah

Dollars and rupiah (Photo: Antara)

JAKARTA - The rupiah exchange rate in trading Friday, June 21, 2024 is expected to expand against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, June 20, 2024, the rupiah exchange rate on the spot market closed lower by 0.40 percent at the level of Rp. 16,430 per US dollar. Similarly, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed down 0.31 percent to a price level of Rp. 16,420 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said traders were waiting for more US policy instructions, while the Bank of England (BoE) would hold a meeting, where interest rates were expected to remain unchanged.

Apart from BoE, investors will also be observing the decision of the central banks of Switzerland and Norway on Thursday to determine the prospects for global interest rates.

"Data on Wednesday showed UK inflation returned to its target of 2 percent for the first time in nearly three years in May, but strong price pressure ruled out lower interest rates ahead of next month's election," quoted Friday, June 21.

Ibrahim said the market only saw a 30 percent chance of lowering interest rates in August and thought that the first step would likely be taken in September or November.

As for the macro level, investors are looking for a new signal about when the Federal Reserve will start its policy easing cycle after the central bank last week projected only one-time drop in interest rates this year and policymakers this week were also cautious.

From an internal point of view, Bank Indonesia (BI) again maintains the benchmark interest rate or BI Rate at the level of 6.25 percent in the Board of Governors' Meeting (RDG) which will take place on June 20-21, 2024. Meanwhile, the Deposit Facility interest rate rose to 5.50 percent and the Lending Facility interest rate was 7 percent.

This decision is consistent with the monetary policy of prostability of some preemptive and forward looking steps to ensure inflation is on target of 2.5 percent plus minus 1 percent in 2024 and 2025. This policy will be supported by strengthening monetary operations to strengthen the effectiveness of rupiah stability and the entry of foreign capital flows.

The reason for maintaining interest rates is because Bank Indonesia (BI) estimates that the global economy will grow higher than previously estimated, reaching 3.2 percent in 2024, higher than the initial estimate, especially better economic growth in India and China. Although the uncertainty of the global financial market remains high amid the prospect of a stronger world economy.

It is known that the rupiah has now penetrated the level of Rp. 16,430. Meanwhile, the macro-pudential policy and the payment system will continue to support sustainable economic growth to encourage bank credit/financing to the business world and households.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Friday, June 21, 2024, in the price range of Rp. 16,420 - Rp. 16,500 per US dollar.