The Fed Cuts Interest Rates, Rupiah Potentially Strengthens Again

Illustration (Photo: Doc Antara)

JAKARTA - The rupiah exchange rate in trading Friday, September 20, 2024 is expected to move higher against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, September 19, 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.Laba Forexindo Berjangka Ibrahim Assuaibi said the Federal Reserve decided to cut interest rates by 50 bps in the range of 4.75 percent-5.00 percent, citing greater confidence that inflation would continue to recede to the US central bank's annual target of 2 percent.

"The policymakers see the Fed's benchmark interest rate will fall again by the end of this year, 100 bps by 2025, and 50 bps by 2026 until it ends in the range of 2.75 percent-3.00 percent," he said in his statement, quoted Friday, September 20.

Ibrahim said the Federal Reserve's huge cut in interest rates sparked some concerns over the slowing economy.

The central bank is concerned over the slowdown in the labor market, which has the potential to pose more economic bottlenecks in the coming months.

According to Ibrahim, the Fed's cut in interest rates caused various central Bank reactions to cut interest rates by 50 basis points on Wednesday and announced the start of an easing cycle that would see interest rates drop further.

While lower interest rates are usually a good sign for economic activity, the Fed's aggressive cuts have sparked some concerns over the potential slowdown in economic growth.

From a domestic perspective, Indonesia's trade balance in August 2024 was recorded to continue its surplus, resulting in a surplus of 52 consecutive months since May 2020.

Bank Indonesia (BI) assesses that the achievement of the trade balance surplus supports the external resilience of the Indonesian economy.

On the other hand, Bank Indonesia (BI) finally decided to cut the benchmark interest rate from the level of 6.25 percent to 6.00 percent at the September 2024 Board of Governors' Meeting (RGD) in Jakarta, Wednesday, September 18, 2024.

BI's decision was considered brave, tactical and anticipatory (preemptive) to support economic strengthening amid indications of weakening a number of economic joints.

The weakening of the economic joints is indicated by the successive four-month deflation, the manufacturing PMI figure is below the normal threshold of 50 over the past two months, the confidence index of business people and consumers has decreased, and the unemployment rate continues to climb every month.

The decision to lower this benchmark interest rate is proof that BI is not just following the central bank of the United States (US) The Fed. BI was 'dare' ahead of the Fed, which will only decide to detain or lower the Federal Funds Rate (FFR) at a meeting 20-21 September 2024.

With the decline in the BI Rate by 25 bps to 6 percent which is considered on time and goal, it is hoped that banks will also adjust interest rates.

The goal is that demand for credit can be boosted so that the economy recovers and improves during the transitional government.

If inflation expectations lead to a target of 2.5 percent and the rupiah exchange rate remains stable, then there is still room for BI to lower the benchmark interest rate, at least (decreasing) 50-75 bps to 5.50 -5.25 percent to become an economic stimulus of the monetary policy path that remains pro-growth.

Ibrahim estimates that the rupiah will fluctuate but close higher in trading Friday, September 20, 2024 in the price range of IDR 15,150 - IDR 15,250 per US dollar.