BI Governor: Rupiah Will Continue to Strengthen
The Governor of Bank Indonesia (BI), Perry Warjiyo, anticipates that the exchange rate of the rupiah will continue to strengthen against the United States dollar (USD).
During a press conference following the BI Board of Governors Meeting, which was broadcast via BI's YouTube channel on Wednesday, September 18, 2024, Perry noted that the uncertainty surrounding monetary policies in developed countries is diminishing, coinciding with a slowdown in global inflationary pressures.
Inflation in the United States, the world's largest economy, is expected to approach the medium-term target of 2 percent amid a deceleration in economic growth and rising unemployment rates.
This situation is likely to accelerate the prospects for a more significant and rapid reduction in the Federal Reserve's benchmark interest rate, known as the Fed Funds Rate (FFR), than previously anticipated.
This trend is evidenced by the declining yields on U.S. Treasury Notes, particularly the 2-year notes, which have fallen more sharply than those of the 10-year notes. Additionally, the U.S. Dollar Index (DXY) against major currencies has weakened.
The European Central Bank (ECB) has also lowered its policy interest rates in line with decreasing inflation, moving towards the medium-term target of 2 percent.
Similarly, the People's Bank of China (PBoC) has reduced interest rates in response to low inflation and persistently weak domestic demand.
"All these developments are expected to stimulate an increase in foreign capital inflows into emerging markets, including Indonesia, which will further strengthen the rupiah," Perry explained.
Moreover, the rupiah is projected to continue its upward trajectory, supported by attractive yields on Indonesian government bonds, low inflation, favorable economic growth prospects for Indonesia, and BI's commitment to maintaining economic stability.
Bank Indonesia projects that Indonesia's economy will grow between 4.7% and 5.5% this year, with a midpoint estimate of 5.1%. The current account deficit (CAD) is expected to range from 0.1% to 0.9% of Gross Domestic Product (GDP) by the end of 2024.
Perry stated that the bank will continue to optimize all monetary instruments, including the Bank Indonesia Rupiah Securities (SRBI), Bank Indonesia Foreign Currency Securities (SVBI), and Bank Indonesia Foreign Currency Sukuk (SUVBI), to enhance the effectiveness of policies aimed at attracting foreign capital inflows and supporting the strengthening of the rupiah.
As of September 17, 2024, the positions of SRBI, SVBI, and SUVBI were recorded at IDR 918.42 trillion, USD 2.95 billion, and USD 280 million, respectively. "Foreign ownership in SRBI reached IDR 246.08 trillion, accounting for 26.79% of the total outstanding," Perry revealed.
Meanwhile, the exchange rate of the rupiah as of September 17, 2024, appreciated by 0.78% to IDR 15,330/USD compared to the end of August 2024, and strengthened by 0.40% compared to the end of December 2023.
