JCI Continues Weakening, Rupiah Exchange Rate Policy Awaited

JCI is still at a low level due to the weakening of the rupiah and other negative external sentiment.

KOMPAS/PRIYOMBODO (PRI)

Visitors document monitors showing index movements on the Indonesia Stock Exchange in Jakarta, Tuesday (16/4/2024).

JAKARTA, KOMPAS — The Composite Stock Price Index on Thursday (18/4/2024) is predicted to still be in a low position after touching its deepest level in 2024 following the Eid holiday two days ago. It is hoped that the weakening exchange rate of the rupiah due to several external factors that have created negative sentiment will be immediately addressed by the government.

At the end of today's first trading session, IHSG was at 7,149. The half-day JCI movement still tends to be weak, like the previous day's trading which closed at level 7,130 (down 0.47 percent) and closed Tuesday (16/4/2024) at level 7,164 (down 1.68 percent).

Analyst from Mirae Asset Sekuritas Indonesia, Christopher Rusli, explained in his report that the depreciation of the rupiah has negatively affected the IHSG. As of midday today, the exchange rate of the rupiah against the US dollar reached Rp 16,185 per dollar, according to Bloomberg data. Meanwhile, on Wednesday (17/4/2024), the Jakarta Interbank Spot Dollar Rate (JISDOR) was at the level of Rp 16,240 per US dollar.

Also read: Capital Market and Rupiah Exchange Rate Fall

This situation, said Christopher, caused the rupiah to reach its weakest level since 2020, namely at 16,220 per US dollar. The decline in the rupiah exchange rate was initially triggered by the Covid-19 pandemic and has continued for the last four years.

”Continuing tensions in the Middle East also put markets in a wait and see condition, increasing global uncertainty. "This encourages investors to refrain from the market or switch to safer asset instruments or safe havens," he said.

Analysts from Mirae Asset Sekuritas Indonesia predict that today's IHSG will only move between the range of 7,092-7,165. The decline of IHSG is followed by foreign investors selling stocks worth IDR 470.5 billion on Wednesday (April 17th, 2024).

Another factor for the weakening exchange rate, according to the article, is market sentiment towards the US Federal Reserve's plan to slow down interest rate cuts this year.

The Fed's Chairman, Jerome Powell, emphasized that more time is needed before deciding on a reduction in interest rates. During a panel discussion at the Washington Forum on April 16, 2024, he stated that the US economy has not yet achieved the central bank's inflation target of 2 percent.

KOMPAS/PRIYOMBODO

Officials inspect US dollars exchanged at PT Valuta Artha Mas in Jakarta on Tuesday (16/4/2024). Officials acknowledge that the number of people releasing their US dollars has increased due to the strengthening of its exchange rate against the rupiah.

Meanwhile, Phintraco Sekuritas analyst Valdy K, in his research statement, predicts that the IHSG has the potential to try to close the gap around 7,180-7,200 today. This means there will be a slight strengthening in the stock price index.

External sentiment changes and government intervention efforts have the potential to push the exchange rate of the rupiah back below Rp 16,000 per US dollar.

In addition to the potential for de-escalation of conflicts in the Middle East region, The Fed may change the direction of its benchmark interest rate policy in the short term, with a chance of cuts in June 2024.

"Thus, the exchange rate of the rupiah has the potential to improve in the coming days. The changes in external sentiment and government intervention efforts have the opportunity to push the exchange rate of the rupiah back below Rp 16,000 per US dollar," said Valdy.

KOMPAS/PRIYOMBODO

Queue of visitors at the PT Valuta Artha Mas foreign exchange exchange place in Jakarta, Tuesday (16/4/2024).

Policies

The Head of the Monetary Management Department at Bank Indonesia (BI), Edi Susiato, revealed that BI will implement monetary policies to bring the rupiah back below Rp 16,000 per US dollar.

"BI certainly takes steps, such as ensuring that it is in the market to continue to monitor or maintain the foreign exchange supply-demand balance, encouraging foreign inflows by "increasing the attractiveness of rupiah assets and reducing hedging costs, as well as building coordination with relevant stakeholders, including the government, banking and Pertamina," he said (Kompas, 4/17/2024).

Meanwhile, PT Samuel Sekuritas Indonesia Senior Economist Fithra Faisal Hastiadi believes that there are two policy options that BI can take to stabilize the exchange rate. First, BI can pursue a benchmark interest rate policy in the hope that it will trigger rupiah appreciation. Second, through a market intervention policy that can be implemented at least until June 2024 or waitandsee by relying on foreign exchange reserves held.

"According to simulations, with 500 million US dollars, the minimum could bring the rupiah from IDR 16,200 to IDR 16,000. If we want it to be even stronger, 1 billion US dollars can bring the rupiah back to the level of IDR 15,900. This can be done for 3 months until June 2024," said Fithra, who is also a lecturer at the Faculty of Economics and Business at the University of Indonesia.

KOMPAS/PRIYOMBODO

The atmosphere at the PT Valuta Artha Mas foreign exchange exchange place in Jakarta, Tuesday (16/4/2024).

As of the end of March 2024, Indonesia's foreign exchange reserves position recorded 140.4 billion US dollars, a decrease compared to the previous month's 144.0 billion US dollars. The foreign exchange reserves are equivalent to 6.4 months of imports financing, or 6.2 months of imports plus payments of the government's foreign debt. In other words, the foreign exchange reserves still exceed the international adequacy standard of around 3 months of imports.

Also read: Rupiah Reaches IDR 16,240, Two Monetary Policy Options Open

Although still adequate, the decline in Indonesia's foreign exchange reserves, according to the Director of Trading and Member Regulation of the Indonesia Stock Exchange (IDX), Irvan Susandy, also contributed to the correction of the IHSG. "Several releases of domestic economic data in the past two weeks have also affected the correction of IHSG, namely Consumer Price Index inflation and foreign exchange reserves for March," he said in a statement to reporters.