Heaptalk, Jakarta — The Rupiah‘s exchange rate against the US Dollar has weakened since early 2024. According to Said Abdullah, Chairman of the Budget Committee (Banggar) of the House of Representatives, the weakening Rupiah is influenced by multiple external and internal factors, including the Federal Reserve’s high interest rate policy, reduced foreign investor interest, and declining export commodity prices.
“From an external perspective, the Federal Reserve’s high-interest rate policy to curb inflation in the United States has triggered capital outflows from developing countries, including Indonesia. This has pressured the exchange rates of developing countries’ currencies, including the Rupiah,” explained Said.
On the internal side, foreign investors’ interest in government securities continues to decline due to several factors, such as the covid-19 pandemic, high inflation, and global geopolitical uncertainty. He also noted that the weakening prices of Indonesia’s main export commodities, such as coal and CPO (crude palm oil), have worsened the Rupiah’s condition.
In Said’s point of view, he cautioned against being complacent about the 3% low inflation rate as the low inflation cannot be interpreted directly as controlled prices of basic necessities.
Compared to other data, perceiving the continued decisions by several industries to lay off employees, household consumption levels in 2023 and 2024 are not as high as in 2022. This can be seen from Bank Indonesia‘s retail sales survey for clothing from 2020 to now since the pandemic. Currently, the value is still at 51.8-57, whereas the pre-pandemic period ranged from 150-240.
“The future conditions we will face will not be easy. It is almost certain that the Federal Reserve will maintain high interest rates, and global geopolitical uncertainty will push each country towards restrictive policies to safeguard their national interests,” Said concluded.
