Rupiah Faces Downward Pressure Following Fed's Hawkish Stance

The Indonesian Rupiah is expected to remain under pressure following the US Federal Reserve's (The Fed) 25 basis point interest rate hike, bringing the benchmark rate to 3.75-4.00 percent. The US central bank also signaled a continued hawkish stance moving forward. Josua Pardede, Head of Economics at Permata Bank, assessed that the Fed's hawkish stance is one of the factors influencing the rupiah's movement. A hawkish stance refers to a central bank's tendency to maintain or raise interest rates to curb inflation. "The Fed raised the Fed Funds Rate by 25 basis points to 3.75-4.00 percent and signaled a hawkish stance going forward," said Josua, as quoted by Antara, Friday, September 18. Citing Xinhua, the latest economic projections of the Federal Open Market Committee or FOMC showed most Fed officials expected the policy rate to be in the range of 4.00-4.25 percent by the end of 2026. The projection comes as the Fed still tries to rein in inflation driven by supply disruptions and geopolitical pressures. The U.S. central bank still has two more meetings this year, in late October and early December. The US dollar at the same time tends to be stable after the market digested the results of the September FOMC meeting. From a geopolitical perspective, oil prices are moving down as expectations rise that Saudi Arabia may be able to operate the East-West pipeline again. Anadolu reported that US Energy Minister Chris Wright said Saudi Arabia's main East-West crude pipeline is expected to resume operations soon. The line was previously closed after it was damaged by drone attacks originating in Iraq. Saudi Arabia uses the pipeline to divert crude oil exports to the Red Sea amid the US-Iranian battle for control of the Strait of Hormuz. Although the route is still temporarily closed, Saudi Arabia diverted some oil shipments through the Strait of Hormuz with the support of the US military, according to Wright. With this condition, Josua estimates that the rupiah will move in the range of IDR 17,700 to IDR 17,850 per US dollar. "Today, we estimate that the rupiah will move in the range of Rp17,700-Rp17,850 per US dollar," said Josua.