BUSINESS FINANCE : Rupiah Depreciated by 0.5% in the Last Week; Here's Why

  

At the end of this week, the parking rate in rupiah was Rp. 15,210 to $1 USD. Despite news from within the country being relatively good, the recent week saw a 0.5% correction in the Garuda exchange rate as a result of US inflation data that was higher than market expectations.

The Rupiah dropped 51 points from yesterday's closing price this afternoon. With the exception of the Hong Kong dollar, which gained 0.06% this afternoon, most other Asian currencies also had corrections. In today's trade, the South Korean won fell by up to 1.2%, the Japanese yen by 0.63%, the Malaysian ringgit and Thai baht both compactly corrected 0.67%, and the rupiah fell by 0.34%.

According to Bank Mandiri Senior Analyst Reny Eka Putri, the rupiah fluctuated this week between Rp. 15,150 and 15,250. Both domestic and foreign factors influence the value of the rupiah.

According to him, changes in currency rates are mostly a result of the US inflation data for January 2023, which was announced Tuesday evening. On an annual basis, the figure is 6.4%, down from 6.5% the month prior.

"The market, however, did not react favorably because it anticipated a further decrease to 6.2%. In a similar vein, US core inflation barely decreased to 5.6%, exceeding the consensus estimate of 5.5%, "Friday, July 17th, Reny wrote in a note.

The US producer inflation figures from last night exceeded market forecasts as well. In January 2023, producer inflation was 0.7% in comparison to the previous month and 6.0% as compared to the same month last year. However, on an annual basis, it was slower than the previous month. According to Refinitv, which anticipated 5.4% and 0.4%, this realization was higher than market expectations.

Also, a number of Fed representatives said this week that the terminal rate or peak interest rate would be in the vicinity of 5%-5.25%. In the short term, the rupiah was under pressure once more due to inflation figures and the Fed's hawkish remarks.

Reny claimed that the market was reacting to the January trade balance data that was released last Wednesday, which still showed a surplus of US$3.87 billion. Compared to the realization of US$ 3.89 billion from the previous month, this realization relatively didn't decline considerably.

The outcome of yesterday's Bank Indonesia Board of Governors (RDG) meeting, which agreed to maintain interest rates at 5.75%, is also being closely watched by the market. This is consistent with the prediction that inflation will drop below 4% this year.