Rupiah Weakens: Predictions for BI Rate and Impact on JCI

JAKARTA — The weakening of the rupiah exchange rate remains a primary concern for domestic market participants, particularly ahead of the Bank Indonesia (BI) Board of Governors meeting announcement on Wednesday. The rupiah exchange rate in the spot market remained under pressure at the start of Wednesday morning’s trading. The ‘Garuda’ currency opened at the level of Rp 17,738 per US dollar, weakening by 0.18 per cent compared to the previous day’s close of Rp 17,706 per US dollar.

Amid the pressure on the rupiah, the market is awaiting the direction of the benchmark interest rate, or BI-Rate, which is seen as a determining factor for domestic financial market sentiment. It is believed that BI will not take aggressive steps by raising interest rates solely to reactively respond to the rupiah’s weakness. The central bank is expected to prefer a strategy of direct intervention in the foreign exchange and bond markets to maintain exchange rate stability, rather than raising the benchmark interest rate.

This approach is considered more balanced, as BI can maintain rupiah stability without sacrificing economic growth momentum or national fiscal stability. “BI will essentially not sacrifice Indonesia’s economic growth space and fiscal stability just to reactively respond to the rupiah’s weakness via interest rates,” Nafan told Kompas.com on Wednesday morning. “Therefore, our forecast for the BI-Rate is that it will remain at the 4.75 per cent level, despite the consensus suggesting a 25 bps increase to 5.0 per cent in line with the weakening rupiah exchange rate.”

The BI decision to maintain interest rates will serve as a signal that monetary authorities remain focused on preserving economic growth momentum amidst global pressures and financial market volatility. On the other hand, investors are also closely monitoring President Prabowo Subianto’s economic policy speech during the DPR plenary session this Wednesday. Market participants are awaiting clarity regarding the government’s strategy to maintain macroeconomic stability, the direction of fiscal policy, and concrete steps to respond to pressures in the financial markets. Nafan noted that if the President’s speech can provide certainty and commitment to market stability, the opportunity for a technical rebound in the domestic stock market remains open. “If this speech provides certainty and commitment to market stability, the opportunity for a technical rebound is wide open. Conversely, if it is deemed less concrete, selling pressure could continue,” he concluded.