Rupiah Weakens Again Driven by Concerns about Rising Interest Rates

JAKARTA - The rupiah exchange rate has the potential to weaken again on Tuesday 31 October 2023 as global dynamics are still hit by uncertainty, the strengthening of the US dollar, and concerns about the potential escalation of the Israel-Hamas war.

Quoting Bloomberg, the Rupiah exchange rate on Tuesday 31 October on the spot market weakened 0.03 percent to IDR 15,895 per US dollar from the previous position of IDR 15,890 per US dollar.

Furthermore, the Jisdor Bank Indonesia (BI) rupiah strengthened 0.16 percent to the level of IDR 15,916 per US dollar from last weekend's position of IDR 15,941 per US dollar.

Ibrahim Assuaibi Director of PT.Laba Forexindo Berjangka said the dollar index strengthened against other currencies, maintaining most of its gains from last week because most of the market was still worried about the Fed's interest rate decision on Wednesday and US Treasury yields also strengthened on Monday, still is within range of recent peaks.

"The central bank will maintain interest rates, but will likely signal higher interest rates for a longer period of time as the bank continues to move against overheating inflation," he explained, Monday, October 31.

Ibrahim said that economists are optimistic that the Indonesian economy can grow at 5 percent amidst two geopolitical conflicts, making global dynamics still hit by uncertainty.

On the other hand, Hamas' attacks on Israel sparked tensions in the Middle East region. Commodity supplies have stagnated again. Rising oil prices have an impact on various countries. Even so, at the national level.

Ibrahim said that the political year would encourage people's spending power so that economists would also encourage the government to improve the commodity sector and manufacturing industry to encourage economic growth.

"It should be noted that 50 percent of economic growth comes from household consumption, the rest comes from investment, then exports and imports. For this reason, we must maintain people's purchasing power and maintain commodity price stability," he explained.

Ibrahim said that currently countries are experiencing inflation problems, political tensions in the region are triggering other problems. Meanwhile, International Monetary Fund (IMF) data estimates that global economic growth could slow to 2.9 percent in 2024 from the previous estimate of 3 percent.

Global uncertainty was also triggered by the economic slowdown in America and China. Currently, America is under inflationary pressure, forcing the Fed to restrain people's purchasing power. However, on the other hand, they also have to be able to maintain the amount of money in circulation.

Meanwhile, China is currently experiencing chaos, Evergrande is experiencing financial problems. The IMF also reported that in the third quarter of 2023, there is a kind of pessimism because inflation pressure remains and economic growth tends to stagnate or even decline due to global uncertainty.

Ibrahim estimates that the rupiah will fluctuate but close lower in trading on Tuesday, October 31 in the price range of IDR 15,870- IDR 15,950 per US dollar.