The Indonesian Rupiah Ends the Week Lower, Expected to Weaken Further

US - RUPIAH - JAKARTA. The Indonesian rupiah closed the week lower on Friday, February 23, 2024, and is expected to weaken further in early trading on Monday, February 26.

On Friday, the rupiah closed at Rp 15,589 per US dollar in the spot market, down 0.05% on the day but up 0.17% on the week. The Bank Indonesia (BI) reference rate, the Jakarta Interbank Spot Dollar Rate (Jisdor), closed at Rp 15,589 per US dollar, up 0.26% on the day and 0.41% on the week.

Ibrahim Assuaibi, Director of PT Laba Forexindo Berjangka, said the rupiah weakened at the end of the week following statements from US Federal Reserve officials about interest rates. Hawkish comments and strong labor data further weakened early bets on a rate cut.

Christopher Waller, a member of the Fed's Board of Governors, said on Thursday, February 22, that more evidence of inflation cooling is needed before the central bank considers cutting rates. Waller's comments were among those of several Fed officials this week who said the central bank is in no hurry to start cutting monetary policy.

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Ibrahim said the prospect of higher US interest rates for a longer period is a bad sign for Asian markets, as the gap between risky and risk-free yields narrows.

"This idea (of higher interest rates) has caused most regional currencies to trade lower this week," Ibrahim said in his research on Friday.

Meanwhile, Lukman Leong, a currency and commodity observer, said there were no surprises in the Fed's statement in the minutes of the FOMC meeting this week, which was more or less less hawkish. This gave some strength to the rupiah, which tended to be strong for the week.

Domestically, the rupiah was supported this week by a statement from Bank Indonesia (BI) that it would continue to maintain the stability of the rupiah exchange rate. BI held its benchmark interest rate at 6% at its February 20-21, 2024 meeting.

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However, Lukman sees the rupiah's weakening trend at the end of the week likely to continue. This is mainly due to concerns that inflation in the US will again be higher than expected, as in previous data.

"The US dollar has the potential to strengthen again and the rupiah to weaken," Lukman told Kontan.co.id on Friday.

Lukman said investors will be looking ahead to the US PCE inflation data to be released next week. Domestically, the Indonesian inflation data for February will be in focus.

As a result, Lukman projects the rupiah to weaken in the range of Rp 15,550 - Rp 15,700 per US dollar on Monday, February 26.

Ibrahim, meanwhile, expects the rupiah to be volatile but close lower in the range of Rp 15,580 - Rp 15,650 per US dollar.