Market Awaits Fed Interest Rate Decision, Rupiah Potential to Weaken

Rupiah (photo: dock. Antara)

JAKARTA - The rupiah exchange rate on Wednesday, July 31, 2024, is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Tuesday, July 30, 2024, the rupiah exchange rate on the spot market closed down 0.12 percent at IDR 16,300 per US dollar. Meanwhile, the rupiah exchange rate at the Jakarta Interbank Spot Dollar Rate (Jisdor) Bank Indonesia (BI) closed down 0.20 percent to IDR 16,320 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said that the market focus has shifted entirely to US interest rates. This caution has made traders biased towards the dollar.

"The central bank is widely expected to keep interest rates unchanged at the end of its meeting on Wednesday," he said in his statement, quoted on Wednesday, July 31.

In addition, any signals about when it plans to start cutting interest rates will be closely watched. Markets are widely expecting a 25 basis point cut in September, but further rate cuts are still in doubt.

Ibrahim said a series of disappointing economic news from China has shaken markets recently. Chinese manufacturing activity likely shrank for a third month in July, according to a Reuters poll on Monday.

Also on Monday, Citi cut its China growth forecast to 4.8 percent from 5 percent after the country's second-quarter growth missed analysts' estimates, noting that economic activity weakened further in July.

Internally, the government's debt position rose to IDR 8,444.87 trillion by the end of June 2024 or three months before the end of President Joko Widodo's (Jokowi) leadership. This ratio has remained consistently below the safe limit of 60 percent of GDP in accordance with Law No. 17/2003 concerning State Finance. The Ministry of Finance detailed that the majority of government debt comes from within the country with a proportion of 71.12 percent.

Citing the APBN Kita book, the government's debt position in June 2024 increased from IDR 8,353.02 trillion in May 2024 (month-to-month/mtm). With this debt position, the debt ratio as of the end of June 2024 was recorded at 39.13 percent of gross domestic product (GDP).

Meanwhile, based on instruments, the composition of government debt is mostly in the form of Government Securities (SBN) which reached 87.85 percent. As of the end of June 2024, financial institutions were recorded as holding around 41.1 percent of domestic SBN ownership, consisting of banking at 22.1 percent and insurance companies and pension funds at 19.0 percent.

Domestic SBN ownership by Bank Indonesia (BI) was recorded at around 23.1 percent, which is used as a monetary management instrument, among other things. Meanwhile, foreigners were recorded as only owning domestic SBN of around 13.9 percent, including ownership by the government and foreign central banks.

In addition, the government consistently manages debt carefully and measurably by maintaining optimal interest rate, currency, liquidity, and maturity risks. In addition, the government prioritizes the procurement of medium-long-term debt and actively manages the debt portfolio. Ibrahim estimates that the rupiah will fluctuate but close lower on Wednesday, July 31, 2024, in the price range of IDR 16,290 - IDR 16,350 per US dollar.