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Fed’s hawkish U-turn puts rupiah under pressure
Indonesia’s currency is not out of the woods yet as the US Federal Reserve signals a further increase in its key interest rate.
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US Federal Reserve (Fed) board chairman Jerome Powell holds a news conference in Washington, D.C., on Nov. 2, 2022, after announcing that the Fed raised interest rates by three-quarters of a percentage point as part of its efforts to combat inflation. (Reuters/Elizabeth Frantz)
T
he rupiah has weakened significantly against the Unites States dollar over the past month, and analysts expect this trend to continue at least until mid-year, following a change in tone at the US Federal Reserve.
Indonesia’s currency weakened to Rp 15,450 per US dollar on Wednesday, moving it close to the Rp 15,538 where it started the year.
The trend reverses weeks of strengthening that had brought the rupiah to its strongest position in the past few months at Rp 14,888 per US dollar on Feb. 1.
“Rupiah may return to Rp 15,500 per USD at the end of this week while it is possible that it will weaken further to Rp 16,000 per USD this first half,” Ibrahim Assuaibi, director at brokerage firm PT Laba Forexindo Berjangka, said in a statement on Monday.
Bank Indonesia (BI) Governor Perry Warjiyo had predicted in February that the rupiah’s exchange value would keep strengthening for the rest of this year, citing reduced uneasiness in the global financial market and a less hawkish stance by the Fed, along with strong domestic economic growth and relatively low inflation.
However, analysts note now that the rupiah is not out of the woods yet, stressing that external factors, especially from the Fed’s moves, will continue to put significant downward pressure on the currency.
