Rupiah weakens on prospect of Fed holding interest rates higher for longer

The rupiah exchange rate weakened at the close of trading on Monday afternoon, falling 27 points or 0.15 percent to Rp17,948 per US dollar from the previous Rp17,921 per US dollar.

Money market analyst Ibrahim Assuaibi said the rupiah’s depreciation was influenced by the potential for the Federal Reserve to hold high interest rates for longer. “Higher oil prices have renewed concerns that inflation could remain above the Federal Reserve’s target, potentially forcing policymakers to maintain tight monetary policy for longer. Higher interest rates typically support government bond yields and the US dollar,” he said in a written statement received in Jakarta on Monday.

The rise in oil prices was triggered by the US and Iran launching a series of attacks against each other over the weekend. US Central Command (CENTCOM) stated it had launched more strikes against Iran on Sunday evening. The new strikes followed an Iranian attack on a US base in Jordan that killed at least two US soldiers and wounded many others. The US military appeared to be striking a wider range of targets in Iran, while Iran also escalated its attacks on various US assets in Gulf countries.

The fighting remains focused on control of the Strait of Hormuz, as CENTCOM stated that the US strikes aimed to degrade Iranian military capabilities used to attack ships in Hormuz. “Shipping through Hormuz remains largely disrupted, keeping the market alert to the possibility of further oil supply disruptions and pricing in a greater risk premium on the commodity,” Ibrahim said.

Bank Indonesia’s Jakarta Interbank Spot Dollar Rate (JISDOR) also weakened today, moving from Rp17,944 per US dollar to Rp17,976 per US dollar.