Rupiah Potentially Strengthens Amid Expectations For Cutting The Fed's Interest Rate

Illustration. (Photo: Doc. Antara)

JAKARTA - The rupiah exchange rate in trading Thursday, September 19, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, September 18, 2024, the rupiah exchange rate on the spot market closed at the level of Rp. 15,335 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed lower by 0.07 percent to a price level of Rp. 15,350 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said that the release of retail sales data unexpectedly rose 0.1 percent in August, which showed that the economy remained at a solid footing for most of the third quarter.

"Supporting a less aggressive stance by the Federal Reserve, which is widely expected to cut its first interest rate in more than four years," he said in a statement, quoted Thursday, September 19.

Ibrahim conveyed that the Fed's fund futures contract showed the opportunity to cut interest rates by 50 basis points was at 63 percent, compared to 30 percent a week ago, while the chances of cutting by 25 basis points were at 37 percent.

According to Ibrahim the chances have narrowed sharply after media reports revived the prospect of a more aggressive easing.

"Other economic data on Wednesday appeared to provide support for the Fed not to be too aggressive in cutting interest rates. US business supply, the main component of gross domestic product, posted a better increase than expected by 0.3 percent in July while factory production increased in August," he said.

From the domestic side, Indonesia's trade balance in August 2024 was recorded to continue its surplus, so that the surplus occurred for 52 consecutive months since May 2020. Bank Indonesia (BI) assesses that the trade balance surplus achievement supports the external resilience of the Indonesian economy.

On the other hand, Bank Indonesia (BI) estimates that Indonesia's economy this year will reach 4.7-5.5 percent or at the midpoint of 5.1 percent. This is supported by various current indicators including the results of the BI survey showing good economic activity in the third quarter, as reflected in the confidence of consumers with high positive retail sales and rising imports of capital goods and cement sales.

Therefore, in order to achieve economic growth at 5.1 percent, the Board of Governors of Bank Indonesia (BI) meeting finally cut the benchmark interest rate or BI Rate in September 2024. The BI rate was set to 6 percent from the previous 6.25 percent. Meanwhile, the Deposit Facility interest rate was also cut to 5.25 percent, and the Lending Facility interest rate was 6.75 percent.

This rate cut is the first since February 2021 and precedes the Central Bank of America which will lower BI's interest rate tonight to raise interest rates by 275 bps throughout August 2022-April 2024 before holding it in May, June, July and August 2024.

In the future, Bank Indonesia will continue to strengthen policy synergies with the government and other authorities in order to continue to increase external resilience and support sustainable national economic growth.

Ibrahim estimates that the rupiah will fluctuate but close higher on trading Thursday, September 19, 2024, in the price range of IDR 15,230 - IDR 15,350 per US dollar.