Jakarta, CNBC Indonesia – On Thursday (20/10/2022) the exchange rate of the rupee against the US dollar (US) continued to move above Rp 15,000 / US $. This level is expected to persist until the end of the year.
Referring to the Refinitiv data at 10:48 WIB, the rupee has moved to the position of Rp. 15,572 / US $ 1. The value of the rupee fell by 0.49% compared to the previous day.
This position is the lowest since April 16, 2020 or the past 2.5 years, when the rupee at that time hit Rp 15,600 / US $.
Josua Pardede, chief economist at Bank Permata, explained that the current weakening of the rupee is still relatively limited relative to other Asian currencies.
However, the weakening of the rupee will affect manufacturing companies, which among other things are mostly importers of raw materials and capital goods.
Josua hopes that with BI raising interest rates by 50 basis points (bps), the spread between BI and Fed interest rates won’t be too far off. So that the domestic financial market is still observed by investors.
Many analysts, including Josua, predict that the Fed Funds Rate (FFR), currently between 3% and 3.25%, will increase again by 75bps in November and 50bps in December.
Therefore, to attract investors to the Indonesian financial market, BI would need to raise its interest rate to 4.75%.
“The expectations next year are that the Fed will not be as aggressive as this year. We hope that at least the rupee will approach the level of Rp. 15,200 / US $ at the end of the year,” Josua explained to CNBC Indonesia on Thursday. 20/10/2022).
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Joshua estimated that the current rupee exchange rate was still below value. This means that current conditions are more strongly influenced by sentiment factors. The current strengthening of the dollar does not only occur against the rupee exchange rate, but also against other currencies.
With this, global investors tend to invest in safe havens in the midst of high uncertainty right now. Especially with a very aggressive interest rate hike by the US central bank.
“Liquidity is currently king. How to manage foreign currency liquidity needs to be strengthened in terms of DHE (Export Proceeds), foreign exchange reserves and cash flow management,” Josua said.
“We hope BI will carry out these reinforcements so that the rupee does not expect to strengthen, but at least has a balance point so that it is not underestimated,” Josua said.
David Sumual, chief economist of the BCA, also said that the weakening of the rupee is currently relatively good, even when compared to other developing countries.
However, it cannot be avoided, the influence of the weakening of the rupee also derives from external factors, namely the policy of the Fed.
“Despite the weakening of the rupee, the stabilization of the rupee is still favorable, especially for the real sector.
According to David, the weakening of the rupee should not only be seen from a certain face value, but what needs to be maintained is the level of volatility. Therefore, the exchange rate of the rupee, which is still perched in the range of Rp. 15,500 / US%, it is still considered reasonable.
“I think the range of Rp 15,500 / US $ is still favorable for exporters and importers. So our real sector is still running stably and smoothly,” explained David.
David did not deny that, in line with the monetary policy of the Fed and global central banks tightening their monetary policy, the rupee will weaken again until the end of the year.
“It looks like (the rupee) is still under pressure. The overshoot is short-term, but there was stabilization at the beginning of the year,” David said again.
Segara Research Institute’s executive director or chief of economics, Piter Abdullah, said the same thing. According to Piter, there is currently still the rupee to be weakened.
“I think the rupee exchange rate figures are kept by BI not at a certain level, but so that the volatility is more stable,” explained Piter.
“So that the volatility is not too large and is estimated to be above Rp. 15,000 and will slowly return to its new equilibrium,” said Piter again.
If it is true that the weakening of the rupee continues above the level of Rp. 15,000 / US $ until the end of the year, the government’s assumption for the rupee exchange rate in APBN 2022 will be wrong.
In the APBN, the exchange rate is fixed at Rp. 14,350 for USD. Meanwhile, according to the changes to the state budget according to the presidential regulation No. 98 of 2022, the exchange rate is pegged to Rp. 14,450 for USD
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