Today's Rupiah Has Strong Potential Amid Expectations For The Fed's Interest Rate Reduction

Illustration. (Photo: Doc. Antara)

JAKARTA - The rupiah exchange rate in trading Thursday, July 4, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, July 3, 2024, the rupiah exchange rate on the spot market closed higher by 0.15 percent at the level of Rp. 16,371 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed down 0.02 percent to a price level of Rp. 16,387 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said Federal Reserve Chairman Jerome Powell made his rather dovish comments, suggesting that the US central bank will most likely start the easing cycle by the end of this year.

"The Fed's comments exceed data showing job vacancies in the US increased in May after recording a huge drop in the previous two months," Ibrahim said in a statement, quoted Thursday, July 4.

According to Ibrahim following a report by JOLTS and Powell's comments, the US term interest rate expects a 69 percent drop in interest rates in September, up from about 63 percent on Monday, according to LSEG calculations.

"The market also estimates that one or two times the interest rate will decrease in 2024," he said.

In addition, the yields from 10-year tenor US government bonds rose by nearly 14 basis points (bps) to 4.479 percent overnight, and analysts attributed the increase to expectations that Donald Trump would win the US presidency, which in turn led to higher rates and government loans.

From an internal point of view, the Ministry of Finance (Kemenkeu) noted that the government's debt position reached IDR 8,353.02 trillion in May 2024. The amount of debt increased by IDR 14.59 trillion compared to the previous month's position of IDR 8,338.43 trillion.

Quoted from the book APBN Kita Edition in June 2024, it is stated that the ratio of government debt is equivalent to 38.71 percent of Indonesia's gross Domestic Product (GDP). This means that it is consistently maintained below the safe limit of 60 percent of GDP in accordance with Law Number 17/2003 concerning State Finance, and better than what has been established through the 2024-2027 Medium-Term Debt Management Strategy in the range of 40 percent.

Meanwhile, the debt ratio as of the end of May 2024, continues to show a downward trend from the debt-to-GDP 2021 ratio which was recorded at 40.74 percent, 2022 at 39.70 percent and 2023 at 39.21 percent. Based on the instrument, government debt consists of two types, namely in the form of state securities (SBN) and loans. The majority of government debt as of January 2024 is still dominated by SBN instruments, namely 87.96 percent and the rest are 12.04 percent.

In detail, the amount of government debt in the form of Domestic SBN is IDR 7,347.50 trillion. Consisting of domestic SBN amounting to IDR 5,904.64 trillion originating from Government Securities of IDR 4,705.24 trillion and State Sharia Securities (SBSN) of IDR 1,199.40 trillion. Then, the amount of government debt in the form of foreign currency SBN as of May 2024 was IDR 1,442.85 trillion, consisting of Government Securities of IDR 1,086.55 trillion and Government Sharia Securities (SBSN) of IDR 356.10 trillion.

Then, the government's debt in the form of loans is IDR 1,005.52 trillion as of May 2024. This amount consists of domestic loans of IDR 36.42 trillion and foreign loans of IDR 969.10 trillion. Meanwhile, foreign loans of IDR 969.10 trillion consist of bilateral IDR 265.83 trillion, multilateral IDR 584.65 trillion, and commercial banks of IDR 118.62 trillion.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Thursday, July 4, 2024, in the price range of IDR 16,320 - IDR 16,440 per US dollar.