DBS Bank projects that the rupiah exchange rate against the US dollar will strengthen along with the plan to reduce the US policy interest rate or the fed funds rate/FFR. The US Central Bank or The Fed plans to cut interest rates faster in September.
DBS Group Research Equities Specialist Maynard Arif revealed that market expectations regarding the Fed’s interest rate cut are predicted to weaken the US dollar. This has an impact on strengthening the currencies of developing countries, including Indonesia.
“With the Fed’s interest rate cut, we expect the dollar to weaken so that the rupiah strengthens. This year, the rupiah’s strengthening trend may still be in the range of Rp16 thousand per US dollar,” said Maynard in a discussion in Jakarta, Tuesday (6/8).
He said, considering that the Fed will cut interest rates up to four times, it will make the rupiah strengthen more sharply to the level of Rp15 thousand per US dollar next year.
“If the Fed continues to lower interest rates, then we hope that the strengthening of the rupiah can continue until 2025 and this could lead to the level of Rp15 thousand per US dollar,” he hoped.
Maynard explained that since April to June, the flow of foreign investor funds out of the Indonesian capital market has increased, especially in debt securities assets. This is because they are still waiting for the FFR to decrease. Based on Bank Indonesia (BI) records, from the beginning of the year to June 27, 2024, non-residents or foreign investors who sold net in the Government Securities (SBN) market reached IDR 36.46 trillion, then sold net in the stock market of IDR 9.78 trillion and bought net IDR 123.21 trillion in Bank Indonesia Rupiah Securities (SRBI). However, with the Fed’s plan to lower interest rates, it is believed to change investor sentiment.
“As market expectations change regarding the Fed’s interest rate policy, investors will return to the Indonesian market in the second half of this year, both in stocks and government bonds,” Maynard explained.
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