Jakarta, CNBC Indonesia – The Rupiah recorded a sharp decline against the United States (US) dollar on Friday (1/7/2022), getting closer to Rp. 15,000/US$. Thus the rupiah recorded a 4-day decline in a row.
According to Refinitiv data, the rupiah opened trading with a slight weakening of 0.01% to Rp 14,910/US$. Had strengthened to Rp 14,860/US$, the rupiah then reversed to decline by 0.5% to Rp 14,970/US$ which was the weakest level in more than 2 years.
At the close of trading, the rupiah was at Rp 14,935/US$, down 0.27% on the spot market. In a week, the rupiah weakened 0.61%. In addition, the rupiah also recorded a 4-week decline in a row with a total of around 3.5%.
The release of Indonesia’s inflation data put pressure on the rupiah today. Head of the Central Statistics Agency (BPS) Margo Yuwono reported that inflation in June 2022 was recorded at 0.61% compared to the previous month (month-to-month/mtm). Calendar year inflation was 3.19%
Annually (year-on-year/yoy), inflation in June 2022 stands at 4.35%. This is higher than May 2022 which was 3.55% and the highest since June 2017.
The market consensus compiled by CNBC Indonesia predicts monthly inflation of 0.44%. Meanwhile, annual inflation is ‘forecast’ at 4.15%.
The increase in inflation was also higher than the Trading Economics consensus of 4.17%, but if we look at it, core inflation was actually lower.
BPS reported that core inflation grew 2.63% (yoy) from the previous 2.58% (yoy), while the consensus at Trading Economics forecast it at 2.72% (yoy).
This can be a signal if people’s purchasing power begins to erode due to rising inflation, which of course has a bad impact on the economy.
The decline in purchasing power was due to group inflation volatile which broke through 2.51% (mtm) and 10.07% (yoy). This level is the highest since December 2014 or the last 7.5 years. If you look at inflation again volatile skyrocketed in food items, reaching 2.3% (mtm) and 9.57% (yoy).
Indonesia’s inflation is not expected to subside in the second half of this year. Domestic economic recovery will boost the demand side so that inflationary pressures, especially core inflation, will increase.
Margo reminded that the government will also raise the basic electricity tariff for the upper middle class starting in July so that inflation in the government-regulated price group can creep up. Indonesia will also start a new academic season in July-August which can boost inflation.
BPS data also shows that the Wholesale Price Index (IHPB) for imported commodities and imported raw materials has experienced a persistent increase. This includes wheat flour and urea powder. Industrial IHPB reached 0.37% (mtm) and 5.39 (yoy), agriculture IHPB 1.96% (mtm) and 2.95% (yoy).
“The impact of export restrictions (a number of countries) has begun to reach us but is still at the level of large trade. It has not yet reached consumers,” said Margo.
Despite the risk of rising inflation, Bank Indonesia is still in no hurry to raise interest rates.
“Core inflation is low and BI has room not to rush to raise interest rates,” said BI Governor Perry Warjiyo at the Banggar meeting, Friday (1/7/2022).
BI, continued Perry, remains focused on maintaining economic growth. In terms of normalization, BI has adopted a policy of progressively increasing the Statutory Reserves (GWM).
“We will maintain interest rates until there are fundamental increases in inflation, especially core inflation,” he concluded.
Perry also estimates that the rupiah’s performance will improve at the end of this year in the range of Rp. 14,300US$ – Rp. 14,700/US$.
This estimate is supported by a low current account deficit and sufficient foreign exchange reserves as well as policy measures to stabilize the rupiah exchange rate, both in the spot, SBN and DNDF markets.
CNBC INDONESIA RESEARCH TEAM
There is a lot of External Pressure, Rupiah Corrects Slightly