Langgam Pos - The Indonesian rupiah showed resilience at the start of the week, driven by investor confidence that the Federal Reserve may cut interest rates. Bank Permata's Chief Economist, Josua Pardede, predicts that the rupiah will trade between 16,225 and 16,325 per US dollar today.
The rupiah strengthened against the US dollar in early trading this week following the release of the US Personal Consumption Expenditures (PCE) inflation data.
On Monday (July 29, 2024), the rupiah opened up by 15 points or 0.09 percent at 16,286 per US dollar, compared to the previous rate of 16,301 per US dollar.
Josua Pardede explained that the US dollar traded slightly weaker amid moderate changes in the PCE price index. "The PCE Price Index, an inflation indicator used by the Fed in determining its monetary policy, decreased moderately in June, in line with consensus expectations," said Pardede, as quoted by Antara.
The PCE Price Index slowed to 2.5 percent year-on-year (yoy) from 2.6 percent yoy, while the Core PCE Index remained unchanged at 2.6 percent yoy, slightly above the 2.5 percent yoy expectation.
These figures have bolstered investor confidence that the Federal Reserve might lower the Fed Funds Rate (FFR) at least twice in 2024. Other data also indicate that the US economy is beginning to slow down.
US Personal Income for June 2024 fell to 0.2 percent month-to-month (mtm) from 0.4 percent mtm, and Personal Spending also slowed to 0.3 percent mtm from 0.4 percent mtm. These data support the weakening of the US dollar.
Investors are now looking forward to monetary policy decisions from major central banks this week, including the Fed, the Bank of Japan (BoJ), and the Bank of England (BoE).
Josua predicts that the rupiah will trade between 16,225 and 16,325 per US dollar today.
Bank Indonesia Optimistic About Rupiah's Performance Amid High-Interest Rate Era Ending
Bank Indonesia remains optimistic about the rupiah's performance against the US dollar, forecasting a strengthening trend in the coming months.
Ramdan Denny Prakoso, Head of the Monetary and Securities Asset Management Group at Bank Indonesia, noted that one of the factors driving the rupiah's appreciation is the anticipated decrease in interest rates. "I see significant potential for the rupiah to strengthen. Many analysts believe that US interest rates have peaked and will start to decline," he said during a discussion in East Sumba, as reported on Tuesday (July 23, 2024).
According to Bloomberg data, the rupiah depreciated by 4.81 percent until July 12, 2024. This decline is relatively modest compared to other emerging markets. For instance, Brazil saw a 12.1 percent depreciation during the same period, while the Turkish lira weakened by 11 percent.
To maintain a stable rupiah and support its appreciation, Denny emphasized that Bank Indonesia continues to implement market-friendly monetary policies, including the issuance of Bank Indonesia Rupiah Securities (SRBI).
SRBI is a short-term debt security issued by Bank Indonesia, backed by state securities (SBN) held by the central bank.
"With this market-friendly policy, Bank Indonesia has a strong foundation for a brighter future," he concluded.
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