Rupiah weakens on prospect of Fed rate hike

Doo Financial Futures analyst Lukman Leong said the rupiah weakened after the prospect of a US central bank, or Federal Reserve (The Fed), interest rate hike increased following the Federal Open Market Committee (FOMC) meeting. He explained that the prospect emerged because US inflation is currently at 4.2 percent, still far from The Fed’s 2 percent target. The rupiah exchange rate on Friday morning moved down 51 points, or 0.29 percent, to Rp17,845 per US dollar compared to the previous close of Rp17,794 per US dollar. Citing Anadolu, The Fed Chair Kevin Warsh expressed commitment to achieving the 2 percent price stability target. When asked whether The Fed could reconsider the 2 percent inflation target, Warsh said that level remains the central bank’s long-term goal and should not be reviewed before The Fed is able to achieve it again. Additionally, the US dollar index reportedly reached its highest level in more than a year. Concerns that global crude oil supply will not yet recover due to war also supported the dollar, although the first-stage peace agreement between the US and Iran supported the rupiah. “This first-stage peace agreement certainly supports the rupiah, but in the short term such fluctuations occur, investors are still paying attention to the prospect of The Fed’s interest rate,” Lukman said. As for domestic sentiment, Morgan Stanley Capital International’s (MSCI) decision to maintain Indonesia’s status as an emerging market is quite reassuring and could support the rupiah. Likewise, Bank Indonesia’s (BI) decision to raise the BI-Rate is considered very important to support the rupiah and is expected to be raised further by around 50 basis points. Based on these factors, the rupiah is predicted to trade in the range of Rp17,800 to Rp17,900 per US dollar.