Rupiah Weakens To Level Rp15,815 Per US Dollar After BI Set Interest Rates 6 Percent

Illustration (Photo: Doc. Antara)

The rupiah closed down 85 points to the level of IDR 15,815 from its previous closing at the level of IDR 15,730 per US dollar on Thursday, October 19, after Bank Indonesia raised the benchmark interest rate to 6 percent.

For information, Bank Indonesia (BI) raised the benchmark interest rate or BI-7 Day Repo Rate (BI7DRR) by 25 basis points to 6 percent level.

The interest rate increase is the first time since BI raised interest rates to a level of 5.75 percent in January 2023 and maintained it at that level until September 2023.

BI Governor Perry Warjiyo revealed the reason why the BI Board of Governors raised the benchmark interest rate or BI rate to strengthen the rupiah exchange rate which later weakened against the US dollar.

"This increase is to strengthen the policy of stabilizing the rupiah exchange rate, from the increasing impact of global uncertainty, as well as pre-emptive and forward looking steps to mitigate its impact on imported inflation of goods (imported inflation), so that inflation remains under control in the target of 3.0 plus minus 1 percent in 2023 and 2.5 plus minus 1 percent in 2024," he said at a press conference at the Board of Governors' Meeting (RDG) of Bank Indonesia, Thursday, October 19.

Director of PT Laba Forexindo Berjangka Ibrahim Assuaibi said external factors affecting the movement of the rupiah coming from the dollar received support from the surge in US Treasury yields, which continued its rise, as the market betting that Federal Reserve Chairman Jerome Powell would give a hawkish tone in his speech on Thursday night.

Sentiment remains weak amid at least signs of Israel-Hamas war deescalation, which has kept traders alert to risky assets.

"This is exacerbated by the weakening bond market, as traders prepare to raise interest rates. And the current focus is on the speech of Fed Powell's chairman at the Economic Club of New York today," he explained.

According to Ibrahim, in Chinese, there are concerns over the default of the property market in the country.

Events like this could trigger a series of defaults for developers and trigger massive debt restructuring on the Chinese property market.

"The massive default in the Chinese property market is a bad sign for the economy, considering the market accounts for about a quarter of local economic activity," he explained.

Ibrahim estimates that the rupiah in trading on Friday, October 20, 2023, will weaken by Rp15,800-Rp15,870 per US dollar.