DIGIVESTASI - Rupiah Weakens, Hits Rp 16,000 per US Dollar, The Indonesian rupiah weakened against the US dollar, reaching Rp 16,000 in Friday afternoon trading (December 13, 2024). This decline occurred amid market uncertainty over the Federal Reserve's (The Fed's) long-term interest rate policy.

The rupiah closed 64 points lower (0.4%) at Rp 16,008 per US dollar, compared to Thursday’s close (December 12, 2024) at Rp 15,944. Meanwhile, the US Dollar Index edged up by 0.06 points to 107.06.

Analysts’ Comments

Ibrahim Assuaibi, Director of PT Laba Forexindo Berjangka, noted that in trading ahead of the weekend, the rupiah hit an intraday low, weakening by up to 70 points before closing at Rp 16,008. He projected that the rupiah’s movement next Monday (December 16, 2024) would remain volatile, with closing levels expected in the range of Rp 15,090–Rp 16,070.

“The rupiah’s depreciation was driven by market expectations that the Fed would reduce interest rates by 25 basis points (bps). However, concerns over the Fed’s long-term interest rate strategy remain prevalent, especially after recent data showed persistently high US inflation,” he said.

Ibrahim further added that in 2025, the Fed’s rate cuts are likely to proceed at a slower pace after the expected 75 bps reduction in 2024. On the other hand, expansive fiscal policies and elevated inflation under President-elect Donald Trump’s administration could keep interest rates high over the long term. Ibrahim also highlighted the importance of monetary policy developments in Japan and the UK, which could become key focus points for markets next week.

China’s Economic Policies Disappoint Investors

Globally, market sentiment was also influenced by the outcomes of China's Central Economic Work Conference (CEWC), which concluded Thursday (December 12, 2024). During the meeting, China committed to increasing its fiscal deficit, issuing more debt, and easing monetary policies to sustain economic growth. However, investors reacted skeptically, viewing these measures as insufficient for rapidly countering deflationary pressures in the country.

The CEWC set broad objectives for several key indicators, including economic growth, fiscal deficits, and debt issuance. Specific targets for these metrics are expected to be revealed at China’s annual parliamentary session in March.

Impact of Domestic Policies

Domestically, Ibrahim highlighted the potential effects of the planned increase in Value-Added Tax (VAT) to 12%, scheduled to take effect in 2025. This policy is expected to boost state revenue by up to Rp 75 trillion, but it also poses risks of spurring inflation and weakening consumer purchasing power.

“For instance, when VAT increased to 11% in 2022, inflation rose by 0.95% in a single month. A similar or even larger impact could occur again,” he said.

Ibrahim emphasized the importance of properly allocating the additional revenue generated by the VAT hike to support pro-people programs, such as subsidies for health, education, and basic infrastructure development. “If the funds are not wisely allocated, the pressure on household purchasing power and consumption will only grow,” he concluded.

Find more news and articles on Google News