Rupiah Potentially Weakening In The Range Of Rp15,600-Rp15,670 Per US Dollar

Currency illustration (photo: dock. Antara)

JAKARTA - The rupiah exchange rate on Friday, January 19, 2024, is expected to fluctuate again but closed lower against the United States (US) dollar, driven by the expepation of lower interest rates.

Quoting Bloomberg, the Rupiah exchange rate on Thursday, January 18, the rupiah spot exchange rate rose 0.12 percent to Rp15,624 per US dollar. Meanwhile, Jisdor's rupiah exchange rate closed up 0.06 percent to a price level of Rp15,630 per US dollar.

Director of PT Laba Forexindo Berjangka Ibrahim Assuaibi expressed uncertainty about when the Fed would start lowering interest rates has helped the dollar recover this year after being hit hard by the end of 2023 following the Fed's dovish stance at a FOMC meeting in December.

"Market expectations for lower interest rates in March have reduced to a 62.2 percent chance compared to an estimated 76.9 percent in the previous session, according to the FedWatch Tool from CME," he said in a statement quoted on Friday, January 19.

According to Ibrahim, US retail sales will be released on Wednesday night, and will be closely monitored to find out indications that consumer spending the main driver of economic growth remains resilient in the face of rising interest rates.

Additionally, UK's consumer price inflation rose for the first time in 10 months in December, up to 4.0 percent on an annual basis from its lowest level in more than two years by 3.9 percent in November.

Ibrahim said this resulted in traders reducing the expectations of lowering the interest rate of the Bank of England in the coming months, with inflation proving stiffer than previously thought.

In Asia, China's economy grew slightly lower than expected in the fourth quarter, and barely surpassed the government's 5 percent forecast for growth by 2023.

This figure shows that post-COVID recovery has had little momentum over the past year, and has had a decent impact on China in 2024.

From an internal point of view, the Governor of Bank Indonesia (BI), Perry Warjiyo revealed that the space for lowering the BI benchmark interest rate is still open. This is in line with the direction of monetary policy that is pro-stability and a pro-growth payment system.

Meanwhile, at the January 2024 Board of Governors Meeting, BI decided to maintain the benchmark interest rate at the 6 percent level. By considering the ongoing volatility of the global financial market.

However, there are a number of criteria to consider lower interest rates. First, how fast is the strengthening of the rupiah exchange rate.

Second, inflation remains under control, especially core inflation and food inflation. And third, the development of credit support in economic financing that will support economic growth.

Meanwhile, Indonesia's trade surplus lasted until the end of 2023. Indonesia managed to achieve a surplus of USD 3.3 billion in December 2023, an increase from USD 2.4 billion in the previous month.

The continued trade surplus managed to support foreign exchange reserves which reached 146.4 billion US dollars at the end of 2023, an increase from 137.2 billion US dollars in 2022.

The decline in American central bank interest rates in 2024 will also be followed by Bank Indonesia, in order to maintain the existing momentum, so that with a decrease in interest rates it can have an impact on reducing credit interest, which will have an impact on infrastructure development and community consumption that is stretched.

Ibrahim estimates that the rupiah will fluctuate but closed lower on Friday 19 January trading in the price range of Rp15,600- Rp15,670 per US dollar.