Market Awaits US Economic Data Release, Rupiah Has Potential to Strengthen Today

Illustration. (Photo: Doc. Antara)

JAKARTA - The rupiah exchange rate on Tuesday, August 13, 2024, is expected to strengthen against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Monday, August 12, 2024, the rupiah exchange rate on the spot market closed down 0.19 percent at IDR 15,955 per US dollar. Meanwhile, the rupiah exchange rate at Bank Indonesia's (BI) Jakarta Interbank Spot Dollar Rate (Jisdor) closed down 0.30 percent to IDR 15,963 per US dollar.

Director of PT Laba Forexindo Berjangka Ibrahim Assuaibi said the market had experienced a chaotic week, mostly triggered by the surprisingly weak US payroll figures a week ago which caused global stocks to fall.

"However, the market considers concerns over a US recession to be overblown, with the focus shifting directly to a series of key inflation readings this week. On the other hand, the Japanese market is on a national holiday today," said Ibrahim in his statement, quoted on Tuesday, August 13.

Ibrahim said the focus this week is also on inflation readings from a series of major economies this week, especially the US consumer price index inflation due on Wednesday, which is expected to show a slight decline in inflation through July, which bodes well for expectations of a September interest rate cut.

"The chance of the Fed cutting rates by 50 basis points at its next policy meeting on September 17-18 has fallen to 52 percent, from 69 percent the day before, with a 25 basis point cut now seen as having a 49 percent probability, according to the CME Group's FedWatch Tool," he said.

In addition, sentiment towards China remains constrained by persistent concerns over a slowing economic recovery in the country, especially after a series of weak readings in July. Although the latest inflation data has shown some improvement, it remains to be seen whether China's disinflationary trend is reversing.

Domestically, stagnant consumption and commodity price dynamics are a number of factors that will affect the Indonesian economy over the next five years. The International Monetary Fund (IMF) predicts that Indonesia's economic growth will be stuck at 5.1 percent until 2029.

The IMF's projection of Indonesia's economic growth in 2024 is 5.0 percent. This economic growth is supported by increased public consumption and investment growth that offsets net export constraints due to external pressures.

Economic growth will increase slightly to 5.1 percent according to the IMF, through support from fiscal expansion. Core inflation is also expected to remain stable at the midpoint of the government's target range.

The figure of 5.1 percent remains valid in Indonesia's economic growth projection until 2029 according to the IMF. This means that there is a possibility that the first term of the Prabowo Subianto-Gibran Rakabuming Raka government will continue the trend of economic growth in the range of 5 percent.

Overall, the IMF assesses that Indonesia's fiscal, monetary, and financial policy framework has provided a foundation for macro stability and social benefits. Government policies are considered successful in facilitating economic recovery from global shocks since 2020.

In general, the risks faced by Indonesia are relatively balanced. Meanwhile, the main negative risks include continued commodity price volatility, such as the effects of geopolitical turmoil; sudden slowdowns in the economies of major trading partners, to the negative effects of tighter global financial conditions going forward.

Indonesia's monetary policy is also considered appropriate, with accommodative macroprudential policies that support credit growth and liquidity remains safe. Monetary policy must always be driven by data, based on developments in domestic conditions, to an exchange rate that can dampen shocks.

Ibrahim estimates that the rupiah will fluctuate but close higher on Tuesday, August 13, 2024, in the price range of IDR 15,900 - IDR 16,090 per US dollar.