The Fed Signals A Decline In Interest Rates, Rupiah Has The Potential To Strengthen

Rupiah (Photo: Antara)

JAKARTA - The rupiah exchange rate in trading Friday, July 12, 2024 is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, July 11, 2024, the rupiah exchange rate on the spot market closed higher by 0.28 percent at the level of Rp. 16,195 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed up 0.34 percent to a price level of Rp. 16,200 per US dollar.

Director of PT.Laba Forexindo Berjangka Ibrahim Assuaibi said the US Dollar was traded in a tight range after the testimony of Fed Chairman Jerome Powell before Congress.

"The Fed's chairman marked the weakening of the labor market recently as an increasingly important factor in deciding when the US central bank will start cutting interest rates," he said in a statement, quoted Friday, July 12.

Powell in his speech also said the lower interest rate was inappropriate until the Fed gained greater confidence that inflation was headed for a 2 percent target. However, citing that rising inflation is not the only risk the central bank faces.

According to Ibrahim, the comments by the Fed Chair could be deemed to be preparing the basis for lower interest rates in September 2024, and traders will seek further improvement in his comments ahead of important consumer inflation data.

From an internal perspective, the realization of subsidies and energy compensation in 2024 will swell. This increase is driven by Indonesian Crude Price (ICP) fluctuations, rupiah exchange rates, as well as an increase in LPG volume and subsidized electricity.

In the first semester of 2024, the realization of subsidies and energy compensation reached IDR 155.7 trillion, compared to IDR 161.9 trillion in the same period last year, showing a 3.8 percent decline. However, this figure has not included any compensation that will be calculated in the second semester.

In order to avoid the APBN's revision, the government plans to implement subsidized fuel restrictions starting August 17, 2024, with the aim of reducing the number of subsidized fuel usage. To regulate the distribution of subsidized fuel, the government issued Regulation Number 2 of 2023, which stipulates that subsidized fuel buyers must have a recommendation letter from the regional government, port heads, village heads, or village heads.

The State Budget deficit is a challenge for the government in maintaining financial stability and the balance of the state budget. Meanwhile, the 2024 State Budget deficit is projected to be greater than the set target.

Thus, with the tightening of the use of subsidized fuel, subsidy costs can be reduced, as a result, the government can further save the 2024 State Budget and plans to encourage the use of bioethenol as an alternative to gasoline. The use of bioethenol can reduce air pollution and has low sulfur levels.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Friday, July 12, 2024, in the price range of IDR 16,140 - IDR 16,230 per US dollar.