Market Expects Trump Tariff Impact To US Inflation, Rupiah Predicted Weakening

US and Rupiah dollars (Photo: dock. Antara)

JAKARTA - The rupiah exchange rate in trading Thursday, March 13 is expected to move lower against the United States (US) dollar.

To note, citing Bloomberg, on Wednesday, March 12, the rupiah spot exchange rate closed down 0.26 percent to the level of Rp. 16,452 per US dollar. Meanwhile, the Jakarta Interbank Spot Dollar Rate (Jisdor) exchange rate of Bank Indonesia (BI) closed lower by 0.14 percent to a price level of Rp. 16,453 per US dollar.

Currency Observer Ibrahim Assuaibi said traders were preparing for data on the major consumer price index, which would provide more clues about the economy and could provide insight into the Federal Reserve's interest rate decisions in the future.

"The market is concerned that Trump's tariff agenda will support inflation and prevent the Federal Reserve from cutting interest rates soon, with Wednesday's reading expected to strengthen this idea," he said in a statement, quoted Thursday, March 13.

In addition, Fed officials have indicated that short-term rate cuts are unlikely, and emphasize awareness of inflation risks, especially given recent tariff policies.

Ibrahim said markets fear Trump's tariff agenda will support inflation after Trump's 25 percent steel and aluminum rates come into effect on all US steel and aluminum imports, increasing global trade tensions.

"This step affects various kinds of products, ranging from industrial machine components to daily goods such as soda cans," he said.

Prior to its implementation, Trump had proposed an increase in Canadian steel and aluminum import rates to 50 percent. This escalation is a reaction to Ontario's new trade restrictions.

However, following discussions between Ontario Prime Minister Doug Ford and US Commerce Secretary Howard Lutnick, Ontario agreed to suspend an additional 25 percent of electricity exports to the US, so the Trump administration canceled its proposed 50 percent increase in tariffs and maintained current tariffs of 25 percent.

Meanwhile, from within the country, in early February, the international rating, Fitch Ratings maintains the credit rating of BB for Indonesia, this shows that Indonesia's economic condition tends to be stable with the maintained ratio of government debt.

Meanwhile, Ibrahim said that maintaining a stable outlook reflects Fitch's belief that Indonesia is predicted to be able to maintain macroeconomic stability by maintaining its economic growth prospects.

Although the fiscal deficit is projected to slightly increase to 2.5 percent of GDP this year, Fitch considers that the government remains committed to increasing income mobilization while implementing spending efficiency so that it is expected to decrease moderately from 40.4 percent of GDP by 2025 to 39.1 percent of GDP by 2028.

Fitch considers that Indonesia's growth prospects in the medium term are still high, supported by good economic stability and domestic demand.

However, it is underlined that there are challenges to optimizing state revenues. The New York and London-based institution projects Indonesia's economic growth to be 5 percent by 2025, supported by strong domestic consumption.

Ibrahim said Indonesia is expected to face growth challenges in 2026 as a result of external dynamics that occurred, such as a decrease in import demand from China and the high import rate policy imposed by the United States.

Fitch also highlighted the establishment of the Danantara Investment Management Agency where it was stated that the government needed to pay close attention to the potential risks of contingency obligations that may arise due to the formation of the Danantara.

In addition, Fitch assesses that there is a potential for an increase in Indonesia's credit rating in the future if the government can significantly increase its revenue ratio and reduce external vulnerability.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading Thursday, March 13, 2025, in the price range of Rp. 16,440 - Rp. 16,500 per US dollar.