MARKET – rev, Pediafx
August 28, 2023
Pediafx – The Rupiah strengthened against the US Dollar (USD) following the speech by The Federal Reserve (The Fed) Chairman Jerome Powell last week.
According to Refinitiv, the Rupiah opened higher by 0.03% against the US Dollar at Rp15,285/US$ on Monday (28/8/2023). This is in contrast to the previous Friday’s closing where it weakened by 0.33% at Rp15,290/US$.
Market participants today will assess the impact of Powell’s speech on the economy, including the Rupiah. As known, in his speech at the Jackson Hole Symposium, last Friday in Wyoming, Powell emphasized that the Fed’s task is to lower inflation to the target rate of 2%, unchanged from the previous target. Market interpreted this statement as a potential 25-basis-point interest rate hike at the upcoming meeting.
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“We have tightened policy significantly over the past year. While inflation has come down from its peak—a development that is encouraging—inflation remains too high,” Powell added.
However, Powell also reiterated the central bank’s commitment to continue the tight policy but with a cautious approach, whether tightening is necessary or whether interest rates should be maintained.
Read: Powell’s Speech: The Fed is Ready to Raise Interest Rates Further
Powell’s cautious stance has supported the movement of the Rupiah today because there is a possibility that the Fed may soften if US inflation subsides.
This is reflected in the CME Fedwatch Tool, which has increased to 19.5% for the Fed’s target interest rate of 5.50-5.75%. The remaining 80.5% stated that the Fed’s interest rate will be maintained at 5.25-5.50%.
Will BI’s New Weapon Effectively Boost the Rupiah?
The performance of the Rupiah is expected to be supported by the issuance of contractionary monetary operation instruments, namely Bank Indonesia Rupiah Securities (SRBI).
This instrument is a pro-market tool aimed at strengthening efforts to deepen the money market, supporting the attraction of foreign capital inflows in the form of portfolio investment, and optimizing the government securities (SBN) assets held by Bank Indonesia as the underlying collateral.
BI Governor Perry Warjiyo revealed that this instrument is called securities because it securitizes the SBN owned by BI.
“BI has more than IDR 1,000 trillion in SBN, we securitize them and issue these SRBI with short-term tenors of up to 12 months. We will issue them with tenors of 6, 9, and 12 months,” Perry said during the Governor’s Board Meeting (RDG) on Thursday (24/8/2023).
Andry Asmoro, Chief Economist of PT Bank Mandiri Tbk, believes that SRBI will have a positive impact on the financial market, particularly in maintaining Rupiah stability. Andry previously estimated that the US Dollar could be below IDR 15,000 until 2024.
