US Interest Rate Sustainability Wait Market, Potentially Weakening Rupiah

Illustration (Photo: Doc Antara)

JAKARTA - The rupiah exchange rate in trading Thursday, December 5, 2024 is expected to weaken against the United States (US) dollar.

Quoting Bloomberg, the Rupiah exchange rate on Wednesday, December 4, 2024, the rupiah exchange rate on the spot market closed slightly higher by 0.05 percent at the level of Rp. 15,937 per US dollar.

Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed down 0.04 percent to a price level of IDR 15,957 per US dollar.

Director of PT Profit Forexindo Berjangka Ibrahim Assuaibi said market participants were nervous ahead of US Federal Reserve Speaker Jerome Powell's speech, which was expected to provide further clarity on interest rates.

"Regional currencies are under pressure by this week's dollar spike, amid growing uncertainty over the long-term interest rate prospects," he said in a statement, quoted Thursday, December 5.

In addition, Ibrahim said South Korean President Yoon Suk-Yeol declared martial law on Tuesday in a bid to counter anti-state forces among his political opponents.

According to Ibrahim, the move faced direct backlashes, including parliamentary resistance and public protests, which led him to withdraw the measure within hours.

Therefore, the South Korean central bank held an emergency meeting to stabilize the domestic market.

In addition, South Korea's Ministry of Finance announced on Wednesday that it is ready to inject unlimited liquidity into financial markets, after Finance Minister Choi Sang-mok held talks with Korean Bank Governor Rhee Chang-yong at a meeting of the central bank board last night.

South Korean lawmakers have demanded Yoon's impeachment, which has plunged the country into the worst political crisis since the 1980s. Political uncertainty in the country weakens investor sentiment across Asia, considering South Korea is considered the pillar of the East Asian economy.

Meanwhile, from within the country, the Government through the Ministry of Finance reiterated that the increase in Value Added Tax (VAT) rates to 12 percent will still be implemented in 2025. The government will continue to prioritize people's purchasing power in implementing this policy.

Therefore, purchasing power is one of the priorities in the form of subsidies and social safety nets will be strengthened to protect vulnerable groups of people. This VAT rate increase policy also takes into account the economic structure as a whole.

So far, tax incentives are enjoyed by the upper middle class more, so the government wants to ensure tax policies become more fair and effective.

Previously, the Chairman of the National Economic Council (DEN), Luhut Binsar Pandjaitan, indicated the possibility of delaying the increase in VAT rates.

The postponement is carried out to provide space for the government in providing stimulus in the form of subsidies for low-income people.

The prepared stimulus will be provided in the form of social assistance (bansos) in the form of electricity subsidies. This policy was chosen to avoid the risk of misuse of Direct Cash Assistance (BLT) funds.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Thursday, December 5, 2024, in the price range of IDR 15,920-IDR 16,000 per US dollar.