Rupiah Potentially Weakening Due To Global Uncertainty Increases

Rupiah and US dollars (Photo: intermediate)

JAKARTA - The rupiah exchange rate in trading Tuesday, July 23, 2024 is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Monday, July 22, 2024, the rupiah exchange rate on the spot market closed down 0.18 percent at the level of Rp. 16,220 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed down 0.18 percent to a price level of Rp. 16,228 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said Joe Biden's resignation increased uncertainty regarding the upcoming presidential election, which in turn exacerbated sentiment towards the risk-driven market.

"This, coupled with concerns that the potential for Trump's presidency could also cause more conflict with China, burdening regional currencies," he said in his statement, quoted Tuesday, July 23.

Meanwhile, Biden supports Vice President Kamala Harris, who is now likely to face Republican candidate Donald Trump in the presidential election.

Ibrahim said Trump was seen ahead in polls over Biden and Harris, according to CBS data last week. Analysts expect Trump's presidency to have the potential to produce higher inflation, especially if he continues with stricter trade restrictions and higher import rates against China.

But Harris is now expected to pose a bigger challenge to Trump, especially as reports show all Democratic party heads in the state support Harris. Democratic Party fundraisers also hit $50 million after Biden backed Harris.

From an internal perspective, the market continues to monitor the fate of Prabowo Subianto and Gibran Rakabuming's 2025 State Revenue and Expenditure Budget (APBN) in a dilemma.

On the one hand, the couple must realize their political promises to the community. On the other hand, the budget is limited due to the mounting legacy of President Joko Widodo's (Jokowi) debt.

Ibrahim conveyed that spending is getting worse, starting from free lunch or free nutritious food (MBG) which is planned for next year worth IDR 71 trillion, increasing salaries for civil servants, food estate, the capital city of Nusantara (IKN), and other priority programs that require jumbo funds.

Then, signal the increase in salaries for State Civil Apparatus (ASN) next year, including Civil Servants (PNS) in it. Next year's adjustment of ASN salaries refers to the macroeconomic framework and the main points of fiscal policy (KEM-PPKF) for the 2025 fiscal year.

Automatically, if the signal is realized, it will lead to an increasing portion of employee spending in the 2025 State Revenue and Expenditure Budget (APBN).

"Judging the increase in civil servants' salaries this year alone, which is 8 percent and for retired civil servants of only 12 percent, during the first semester of 2024 there has been an increase in personnel spending of up to 15.4 percent (year-on-year/yoy). It has increased by around Rp20.6 trillion from last year's Rp134.2 trillion to Rp154.8 trillion.

This expenditure will automatically increase the burden of central government spending and will not be a problem if the government offsets it with higher capital expenditures from personnel spending, because it will have a more impact on the economy.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, July 23, 2024, in the price range of Rp. 16,210 - Rp. 16,260 per US dollar.