Middle East Tensions Rise To Encourage Weakening Of Rupiah

Illustration (Photo: Doc Antara)

JAKARTA - The rupiah exchange rate in trading Monday, October 7, 2024 is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the rupiah exchange rate on Friday, October 4, 2024, the rupiah exchange rate on the spot market closed down 0.66 percent at the level of IDR 15,495 per US dollar.

Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed lower by 0.36 percent to a price level of IDR 15,429 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said a series of data releases this week showed that the US economy was still in a solid condition, after the country's service sector activity soared to a 1-1/2 year high in September amid strong growth in new orders.

While separate reports from the Labor Department on Thursday showed labor markets launching at the end of the third quarter.

"This makes traders reduce betting on cutting interest rates for another 50 basis points by the Fed next month, with futures contracts showing only 35 percent of such a scenario," he said in a statement, quoted Monday, October 7.

In addition, Ibrahim said that the US dollar-pressured rupiah was strengthening due to rising tensions in the Middle East.

After Iran's previous attack on Israel, the US was discussing supporting Israel's retaliatory attacks on Iranian oil facilities.

On the other hand, the Israeli military attacked Beirut with new airstrikes in its battle against Lebanese armed group Hezbollah.

From the domestic side, the market continues to observe deflation that occurred for five consecutive months from May to September 2024, clearly shows that the class community (workers) no longer have money to shop.

Therefore, Ibrahim conveyed the request of the Indonesian central bank for the public to spend more to encourage economic growth above 5 percent is impossible to materialize.

The reason is, almost all industrial sectors have terminated their employment (PHK), which will have an impact on the drop in purchasing power.

There are several factors that cause this condition to occur.

The first is termination of employment (PHK).

The Ministry of Manpower recorded 53,993 workers who were laid off as of October 1, 2024.

Most of the thousands of people who were laid off came from the manufacturing sector and three provinces with the largest layoffs were Central Java, Banten, and Jakarta. As well as predicted by the end of the year the number of layoffs will increase by more than 75,000.

The reason is, many companies have been declared bankrupt or eventually moved to other areas where the minimum wage is smaller.

Second, the lack of employment in the labor-intensive sector, in the midst of the booming number of layoffs, the opening of new jobs in the labor-intensive sector in the last five years has also barely existed. Even though this sector is the mainstay of absorbing large numbers of workers so that it is hoped that it can produce what it calls middle class citizens.

However, the latest BPS data shows that 9.48 million Indonesian middle class residents have actually dropped class in the last five years, to only 47.85 million.

This situation cannot be separated from the government's policy of boosting investment in capital-intensive sectors such as mining rather than labor-intensive ones that create new jobs.

The three high interest rates. Although Bank Indonesia (BI) finally cut the benchmark interest rate in September 2024 to 6 percent from the previous 6.25 percent, in order to maintain the strengthening or stability of the rupiah exchange rate.

However, the money circulating in the community becomes more expensive and does not mean it can reduce the spike in deflation in the months to come.

This is because mass layoffs and the absence of new jobs have not been fully resolved. The consequence is that people's purchasing power will not improve either.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Monday, October 7, 2024, in the price range of IDR 15,470 - IDR 15,580 per US dollar.