TEMPO.CO, Jakarta - The Indonesian rupiah weakened on Friday as expectations of further interest rate increases by the U.S. Federal Reserve boosted demand for the U.S. dollar following the latest Federal Open Market Committee (FOMC) meeting.
Lukman Leong, a currency analyst at Doo Financial Futures, said the rupiah remains under pressure as investors reassess the outlook for U.S. monetary policy.
"The rupiah is expected to weaken against the U.S. dollar, which has regained strength amid rising expectations of additional Federal Reserve rate hikes following the FOMC meeting," Lukman told Antara on Friday, June 19.
He noted that expectations for tighter U.S. monetary policy stem from persistently elevated inflation. U.S. inflation currently stands at 4.2 percent, well above the Federal Reserve's long-term target of 2 percent.
The rupiah fell 51 points, or 0.29 percent, to Rp17,845 per U.S. dollar in Friday morning trading, compared with its previous close of Rp17,794.
According to Anadolu Agency, Federal Reserve Chair Kevin Warsh reaffirmed the central bank's commitment to restoring inflation to its 2 percent target. When asked whether the Fed could reconsider that target, Warsh said the benchmark remains a long-term objective and should not be reviewed until the central bank is able to achieve it consistently.
The U.S. dollar has also been supported by broader market concerns over global crude oil supplies amid ongoing geopolitical tensions. However, Lukman said the recently signed first-stage peace agreement between the United States and Iran has provided some support for emerging-market currencies, including the rupiah.
"The initial peace agreement is certainly positive for the rupiah. But in the short term, market fluctuations are likely to continue as investors remain focused on the Federal Reserve's interest rate outlook," he said.
On the domestic front, Lukman said investor sentiment received a boost after Morgan Stanley Capital International (MSCI) maintained Indonesia's classification as an emerging market. He also pointed to Bank Indonesia's recent interest rate increase as a key factor supporting the rupiah.
According to Lukman, the central bank's decision to raise its benchmark BI-Rate was important for stabilizing the currency, and further increases of around 50 basis points may still be possible.
Based on these factors, he expects the rupiah to trade within a range of Rp17,800 to Rp17,900 per U.S. dollar in the near term.
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