Market Expect US Interest Rates To Drop Faster For Rupiah Potentially Strengthening

Rupiah Dollar (Photo: antara)

JAKARTA - The rupiah exchange rate in trading Friday, August 9, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, August 8, 2024, the rupiah exchange rate on the spot market closed up 0.88 percent at the level of Rp15,893 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed higher by 0.92 percent to a price level of Rp15,952 per US dollar.

Director of PT. Laba Forexindo Berjangka Ibrahim Assuaibi said that currently investors are having a lot of trouble looking at the economic prospects of the United States (US), such as the high unemployment rate, as well as inflation that has not subsided, until there is a concern that the US economy is in danger of a recession.

"Investors also expect the Federal Reserve or The Fed to immediately lower the benchmark interest rate," he said in his statement, quoted Friday, August 9.

Investors stepped up their position on the Fed's potential to lower interest rates after the US Central Bank meeting suddenly on Wednesday last week.

At the meeting, Fed Governor Jerome Powell signaled a reduction in interest rates in September 2024 could occur. The statement was followed by a weak release of labor market data on the same Friday week. The swap market estimates a reduction in the Fed's interest rate by nearly 50 basis points in September 2024.

Ibrahim said the traditional role of the US dollar as a safe-haven asset would always be able to reappear if markets continued to falter or geopolitical threats in the Middle East increased.

"Similarly with the return of the Trump trade phenomenon, which is to put funds on assets such as the US dollar or Bitcoin which are seen as benefiting from looser fiscal policies and higher rates if Donald Trump is re-elected as US President," he said.

From a domestic perspective, the rate of domestic inflation continues to record a sloping trend until July 2024, the Central Statistics Agency (BPS) noted that Indonesia's inflation was 2.13 percent year-on-year (yoy), lower than the previous month's 2.51 percent yoy.

Although the inflation rate is sloping, the government will remain aware of the various risks that will put pressure on the inflation rate.

One of them is the turmoil in food prices and supplies going forward, especially because there are still extreme weather challenges in the form of dry seasons that can affect global food stocks and domestic production.

The annual decline in inflation in July 2024 was mainly due to the decline in most food prices as the harvest was abundant and supply stabilization policies, as well as the decline in price inflation was regulated by the government.

If detailed, the volatile price inflation component (VF) has decreased, from 5.96 percent yoy in June 2024, to 3.63 percent yoy in July 2024. This is in line with the harvest of vegetables, fruit, poultry products, and abundant fish stock in the dry season.

VF components that hold back further inflation, namely commodities of various types of chili that have not yet entered the harvest period and rice prices that have started to rise due to reduced stocks.

Meanwhile, core inflation recorded a slight increase to 1.95 percent yoy, compared to the June 2024 period of 1.90 percent yoy.

Groups that contribute to core inflation are education, personal care (including gold), and housing.

On the other hand, the price group regulated by the government (administered price/AP) fell to 1.47 percent yoy, from June 2024 which was 1.68 percent yoy, mainly driven by normalization of transportation rates after the end of the school holiday period.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Friday, August 9, 2024, in the price range of IDR 15,820 - IDR 15,920 per US dollar.