Overshadowed by BI's interest rate, rupiah predicted to weaken

Overshadowed by BI's interest rate, rupiah predicted to weaken

(Illustration) - A teller displays rupiah and US dollar bills at a money exchange in Jakarta. (ANTARA/Puspa Perwitasari/Azizah Fitriyanti)

Jakarta (ANTARA) - The Indonesian rupiah exchange rate, which continues to appreciate, was expected to weaken in Wednesday’s trading, following investors’ enthusiasm for the latest policy move by the Indonesian central bank, the Bank Indonesia (BI) benchmark interest rate and sentiment from the continued strengthening of the US dollar.

Central Bank officials held a monetary policy meeting on July 17, prior to the announcement on July 18, 2019. Investors had been eagerly waiting for the central bank to act, after a statement from the US Federal Reserve to cut the benchmark interest rate for the remainder of this year.

“The Rupiah’s strengthening is likely restrained and turned weaker today due to the US economic data and the issue from Indonesian Central Bank, which will cut off the interest rate’s benchmark ahead of the Fed,” said Ariston Tjendra, Head of Research Monex Investindo Futures, when contacted by Antara News in Jakarta on Wednesday.

This morning, the rupiah exchange rate against the dollar weakened 0.03 percent, or 5 points in the spot market to Rp13,940 per US dollar, compared to the closing on Tuesday (July 16), which was Rp13,935 per US dollar.

Indonesia’s currency continued to weaken nine points to Rp13.949 per US dollar at 08.50 a.m local time, depreciating 0.10 percent, compared to the previous day.

Ariston said, according to a Reuters’ survey, that analysts believe the Indonesian monetary authority would cut its benchmark interest rate by 25 basis points to 5.75 percent on Thursday (18/7), or the first easing since November 2018.

If the Central Bank cuts its benchmark interest rate, it will indicate a change in the attitude of the monetary policy, following an aggressive rate hike in 2018 with 175 basis points to six percent.

Meanwhile, Ariston predicted that on Wednesday the rupiah exchange rate would move to its strongest level of Rp13,900 per US dollar, and the weakest at Rp14,000 per US dollar.

In addition to reflecting interest rate policy, the rupiah’s weakening was also triggered by the economic data announcement from the US on Tuesday evening local time. US retail sales in June 2019 surprisingly grew 0.4 percent beyond the expected 0.2 percent.

This would encourage market players to anticipate that the Federal Reserve's interest rate will not be cut too deep, so that the US “greenback” remains strong.

Related news: Rupiah may rise on Fed's dovish turn
Related news: Bank Indonesia raises its benchmark interest rate 25 basis points

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