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Rupiah expected to see turning point in 2023 as Fed takes its foot off the gas
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An employee holds up wads of rupiah and United States dollar notes at Bank Mandiri Syariah in Jakarta on April 20, 2020. (Antara/Nova Wahyudi)
T
he rupiah is likely to take an unexpected turn toward appreciation against the United States dollar in 2023, resulting in lower imported inflation, both Bank Indonesia (BI) officials and economists projected.
In a forum held by the Institute for the Development of Economics and Finance (INDEF) on Tuesday, BI estimated that in the baseline scenario, the Indonesian currency would strengthen significantly after the first quarter of next year (Q1/2023).
According to data from state-owned lender Bank Mandiri, the rupiah had appreciated by 1.7 percent month-to-date (mtd) or depreciated by 8.5 percent year-to-date (ytd) to Rp 15,468 per US dollar, rising from the depreciation of 10.4 percent ytd on Nov. 30.
On Nov. 30, meanwhile, United States Federal Reserve (Fed) chairperson Jerome Powell implied that the federal funds rate (FFR) would rise at a slower pace than the previous month, which signaled lower pressure on the rupiah.
"Higher interest rates for longer [in the US and Europe]," BI Governor Perry Warjiyo said.
Read also: BI implements third 50 bps rate hike to aid rupiah
In BI's baseline scenario, the FFR would reach its peak at 5 percent in the first quarter of 2023 and would remain in that position until it dropped to 4.75 percent by the end of next year.
