Rupiah Potential to Strengthen as Investors Confident Fed Rate Cut in September

Rupiah (photo: dock. Antara)

JAKARTA - The rupiah exchange rate on Thursday, July 18, 2024, is expected to strengthen against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Wednesday, July 17, 2024, the rupiah exchange rate on the spot market closed up 0.50 percent at IDR 16,100 per US dollar. Meanwhile, the rupiah exchange rate at the Jakarta Interbank Spot Dollar Rate (Jisdor) Bank Indonesia (BI) closed up 0.45 percent to IDR 16,129 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi conveyed optimism that interest rate cuts would also increase US stocks, as weak inflation readings and dovish comments from the Federal Reserve raised speculation that the central bank would start lowering interest rates starting in September.

"Traders are pricing in a 91.7 percent chance that the Fed will cut rates by 25 basis points in September, according to CME Fedwatch. Stronger-than-expected retail sales data did little to dissuade rate cut speculation," he said in a statement, quoted on Thursday, July 18.

Fed Chairman Jerome Powell said this week that the Fed is increasingly confident that inflation will continue to decline. He also previously signaled that the central bank does not need to see inflation reach its 2 percent target to start lowering interest rates.

Internally, Bank Indonesia (BI) set its benchmark interest rate or BI rate at 6.25 percent. This position is still the same as the policy in the previous month. The Deposit Facility interest rate remains at 5.50 percent, and the Lending Facility interest rate is at 7.00 percent.

The rupiah exchange rate, which is often used as a benchmark by BI in determining the BI rate, has also been monitored as being under control, especially since the end of June to July 15, 2024. The BI rate was last raised in April 2024 and was held at the May and June meetings at 6.25 percent.

In addition, BI estimates that Indonesia's economic growth will still be in the range of 4.7 percent-5.5 percent until the end of 2024. The projection for the upper limit of economic growth is far above the government's estimate in the 2024 State Budget macro assumptions of 5.2 percent for the whole year.

Meanwhile, Indonesia's economic growth rate will still be supported by household consumption and investment, as when the economy grew 5.1 percent in the first quarter of 2024.

The same condition is expected to occur for the quarterly period second 2024. Coupled with the increasing performance of goods exports supported by the manufacturing industry, especially in the mining sector which is still growing.

Ibrahim estimates that the rupiah will fluctuate but close stronger in trading on Thursday, July 18, 2024 in the price range of IDR16,040 - IDR16,120 per US dollar.