The weakening of the rupiah eased slightly as BI stabilized the exchange rate. What are the projections in the short term

Having been under pressure due to the strengthening of the US dollar, the rupiah is gradually strengthening its exchange rate. Bank Indonesia has stabilized the exchange rate through financial market intervention since March 2024.

In the last week, the rupiah exchange rate fluctuated until it reached IDR 15,934 per US dollar or weakened by around 3 percent compared to the beginning of 2024. Quoting data from the Jakarta Interbank Spot Dollar Rate Jisdor, rupiah exchange rate on Friday 6 Apr 2024 it closed at IDR 15,873 per US dollar.

The movement of the rupiah is also not separated from the dynamics of foreign portfolio investment in the domestic financial market. During the first week of April 2024, non-resident portfolio investment in the domestic financial market recorded a net sell-off of Rp 8.07 trillion simultaneously. This consists of selling actions in the State Treasury Securities (SBN) market, stock market, and in the Indonesian Central Banks rupiah securities SRBI.

As a result, non-resident investment portfolios during the calendar year until April 4, 2024, decreased by IDR 7.39 trillion with a net buying value of IDR 8.25 trillion. The largest selling action occurred in the SBN market, reaching IDR 34.75 trillion.

The Head Economist of PT Bank Central Asia Tbk (BCA), David Sumual, stated on Saturday Apr 6, 2024 that BI has actively continued market interventions as an effort to stabilize the exchange rate of the rupiah since last month. This is reflected in the March 2024 foreign exchange reserves which decreased by around 4 billion US dollars compared to the previous month.

In April 2024, it is likely that foreign reserves will still decrease due to dividend payments, government foreign debt payments, as well as efforts to stabilize the value of the rupiah by BI, he said when contacted from Jakarta.

In the short term, David continued, the movement of the rupiah will continue to be dynamic with a tendency to weaken. One of the main factors is the development of US economic data, which affects the central banks benchmark interest rate policies (The Fed).

This is supported by the member of The Fed policy-making council (FOMC), Neel Kashkari, who stated that the direction of US monetary policy and benchmark interest rates is highly dependent on US economic data. There is even a possibility that the interest rate cut initially predicted to occur in the second half of 2024 will be delayed given the still solid US economic growth.

Previously, the Chairman of the Financial Services Authority (OJK) Commissioner Board, Mahendra Siregar, assessed that the condition of the economy and global financial markets in general is still quite conducive or better than previously estimated. However, the development of global geopolitics still needs to be continuously monitored in line with the increasing tensions in the Middle East and Ukraine.

Mahendra estimated that The Fed will maintain its plan to reduce the benchmark interest rate by 75 basis points in 2024. The interest rate cut by The Fed will occur in the second semester of 2024

Quoting data from BI, foreign reserve at the end of March 2024 amounted to USD 140.4 billion. This figure is down by around USD 4 billion compared to the position at the end of February 2024 which amounted to USD 144 billion.

This decline is influenced by the governments foreign debt payments and anticipation of foreign currency liquidity needs by corporations. In addition, foreign exchange reserves are also being used for the needs of stabilizing the exchange rate of the rupiah due to the still high uncertainty in the global financial market.

BI assesses that Indonesias foreign exchange reserves are still able to support the resilience of the external sector and maintain the stability of the macroeconomic and financial system. The position of foreign exchange reserves is equivalent to financing 6.4 months of imports or 6.2 months of imports and payment of government foreign debt. International adequacy standards of at least 3 months of import.

Moving forward, BI views that foreign exchange reserves will remain adequate, supported by maintained national economic stability and prospects, along with the synergy of policy responses taken by BI and the government in maintaining macroeconomic stability and financial systems to support sustainable economic growth, said Assistant Governor of BIs Communication Department, Erwin Haryono, in an official statement on Friday Apr 5, 2024.

Source : Kompas.id

Apr 06, 2024