Rupiah weakens as strong expectations of Fed holding high interest rates persist

The rupiah exchange rate against the US dollar closed 19 points lower, or 0.11 percent, at Rp17,936 per US dollar on Thursday, compared to the previous close of Rp17,917 per US dollar. Research & Development from the Indonesia Commodity and Derivatives Exchange (ICDX), Tiffani Safinia, stated that the depreciation was influenced by strong expectations that the Federal Reserve (The Fed) will maintain high interest rates for a longer period. “The weakening of the rupiah to Rp17,936 per US dollar was mainly influenced by global sentiment, namely the persistent strength of the US dollar due to expectations that the Fed will keep interest rates high for longer,” she said in Jakarta on Thursday. ICDX reported that the market currently anticipates at least one more rate hike by the end of the year, while the US central bank is expected to hold rates steady at the upcoming Federal Open Market Committee (FOMC) meeting as it monitors inflation and economic conditions. This situation is seen as encouraging global fund flows to remain directed towards dollar-denominated assets, thereby pressuring emerging market currencies, including the rupiah. From the domestic side, she noted that Bank Indonesia’s (BI) decision to hold the BI-Rate at 5.75 percent demonstrates a focus on maintaining exchange rate and inflation stability. “However, the rupiah’s strengthening is still limited because the interest rate differential with the US is not yet attractive enough for foreign capital inflows, amid persistently high domestic foreign exchange demand,” she said. The Jakarta Interbank Spot Dollar Rate (JISDOR) published by Bank Indonesia also weakened to Rp17,919 per US dollar from the previous Rp17,909 per US dollar.