The indonesian rupiah is facing challenges in strengthening against other Asian currencies following a recent decision by Bank Indonesia (BI) to cut its benchmark interest rate. Analyst Brother Rully Nova from Bank Woori highlighted that the rupiah’s struggle is directly tied to the 25 basis points (bps) reduction in the BI-Rate, which now stands at 5.75%. “It is indeed difficult for the Rupiah to strengthen further compared to other Asian currencies due to the decline in BI’s benchmark interest rate yesterday,” he told ANTARA in Jakarta.
The BI Board of Governors (RDG) Meeting, held on January 14 and 15, 2025, also saw reductions in the deposit facility rate to 5% and the lending facility rate to 6.5%. Rully emphasized that global uncertainties in financial and geopolitical markets are prompting investors to demand higher interest rates for longer periods. ”The risk of global uncertainty has not yet subsided in both financial and geopolitical markets, so market players need higher interest rates for longer,” he explained.
Meanwhile, the US dollar index weakened to 108.6, and US bond yields fell to 4.61%. The Federal Reserve’s dovish stance has also influenced the rupiah’s performance. “The Fed has not eliminated the opportunity for a rate cut in the first half of this year, even in the March meeting if inflation continues to improve,” Rully noted.
At the close of trading on Friday,the rupiah weakened slightly by 4 points (0.02%) to Rp. 16,380 per US dollar, down from Rp. 16,376. However, Bank Indonesia’s Jakarta interbank Spot dollar Rate (JISDOR) showed a slight strengthening to Rp. 16,373 per US dollar from Rp. 16,378.
Key Points Summary
Table of Contents
| Metric | Details |
|————————–|—————————————————————————–|
| BI-Rate | Reduced by 25 bps to 5.75% |
| deposit Facility Rate | Reduced by 25 bps to 5% |
| Lending Facility Rate | Reduced by 25 bps to 6.5% |
| Rupiah Exchange Rate | Weakened to Rp. 16,380 per US dollar (interbank) |
| JISDOR Rate | Strengthened to Rp. 16,373 per US dollar |
| US dollar Index | Weakened to 108.6 |
| US bond Yield | Fell to 4.61% |
The rupiah’s performance remains under scrutiny as market players weigh the impact of BI’s rate cut against global economic trends. For more insights on the rupiah’s potential movements, explore related articles on ANTARA.
Understanding the rupiah’s Struggle: Insights on BI’s Rate Cut and Global Trends
The Indonesian rupiah has been under significant pressure following Bank Indonesia’s (BI) decision to cut its benchmark interest rate by 25 basis points to 5.75%. This move has sparked discussions about the rupiah’s ability to compete with other Asian currencies amidst global economic uncertainties. To shed light on this situation, we sat down with Dr. Maya Sari, an economist and currency market specialist, to explore the factors influencing the rupiah’s performance and what it means for Indonesia’s economy.
The Impact of BI’s Rate Cut on the Rupiah
Senior Editor: Dr. Sari, Bank Indonesia recently cut its benchmark interest rate by 25 basis points. What immediate effects has this had on the rupiah?
Dr. Maya Sari: The rate cut has indeed put downward pressure on the rupiah.When a central bank reduces interest rates, it frequently enough leads to a decrease in foreign investment inflows as returns on investments become less attractive. This has made it harder for the rupiah to strengthen against other Asian currencies like the Thai baht or the Malaysian ringgit, which are benefiting from higher interest rates.
Global Economic Trends and Their Influence
Senior Editor: Beyond BI’s decision, what global factors are impacting the rupiah’s performance?
Dr. Maya Sari: The global financial landscape plays a significant role. The U.S. dollar index has weakened slightly,but uncertainty in the global markets,particularly due to geopolitical tensions and fluctuating commodity prices,is causing investors to be cautious. Additionally,the Federal Reserve’s dovish stance has created a mixed environment. While lower U.S.bond yields can support emerging market currencies, the lingering possibility of rate cuts in the U.S. keeps the dollar’s outlook uncertain, indirectly affecting the rupiah.
Investor Sentiment and Market Reactions
Senior Editor: How are market players reacting to these developments?
Dr. Maya Sari: Many investors are demanding higher interest rates for longer periods due to the persistent global uncertainty. This puts pressure on emerging markets like Indonesia to maintain higher rates to attract foreign capital. Though, with BI’s rate cut, Indonesia is moving in the opposite direction, which could lead to short-term volatility in the currency markets. At the close of trading last Friday, the rupiah weakened slightly to Rp. 16,380 per U.S. dollar, reflecting this cautious sentiment.
Forecasting the Rupiah’s Future Movements
Senior Editor: Looking ahead, what can we expect for the rupiah in the coming months?
Dr. Maya Sari: The rupiah’s outlook will largely depend on how global economic conditions evolve and BI’s policy decisions. If inflation in the U.S. continues to improve and the Federal Reserve cuts rates earlier than expected, we could see some relief for emerging market currencies, including the rupiah. However, if global uncertainty persists or intensifies, the rupiah may face further challenges. Monitoring BI’s next moves and global trends will be critical for predicting its trajectory.
