Rupiah Strengthens to Rp17,944: What Factors Drive the Recovery?

TEMPO.CO, Jakarta - Indonesian rupiah strengthened 114 points, or 0.63 percent, today, from Rp18,085 per US dollar to Rp17,944. 

Muhammad Amru Syifa, Research and Development Officer of the Indonesia Commodity & Derivatives Exchange (ICDX), attributed rupiah's recovery to improving market sentiment and stabilization measures taken by Bank Indonesia (BI).

"After touching its weakest level of Rp18,190 per US dollar at the beginning of the week, the rupiah has begun to show recovery in line with improving market sentiment and stabilization measures taken by Bank Indonesia," he told ANTARA in Jakarta on Wednesday.

Nevertheless, the rupiah could still fluctuate as market continues to monitor global and domestic sentiment, with the current focus on the war in the Middle East, which could affect market appetite for risky assets.

Furthermore, market players are also awaiting the release of US inflation data, which will provide necessary clues regarding the direction of the Federal Reserve's interest rate policy.

"If US inflation remains high, the US dollar has the potential to strengthen because the market will expect interest rates to remain high for longer. In contrast, if inflation is lower than expected, pressure on emerging market currencies, including the rupiah, could ease," Amru said.

Looking at domestic factors, positive sentiment stems from Bank Indonesia's decision to raise its benchmark interest rate by 25 basis points to 5.50 percent.

This move is considered to have increased market confidence in BI's commitment to maintaining exchange rate stability.

"This is evident in the strengthening of the rupiah following the announcement of the interest rate hike. Furthermore, Bank Indonesia's active communication with global investors has also helped maintain optimism regarding the prospects for the Indonesian economy and financial markets," he said.

Bank Indonesia's Jakarta Interbank Spot Dollar Rate (JISDOR) also strengthened today to Rp17,971 per US dollar, up from Rp18,141 per US dollar.

Read: JCI Gains as Investors Welcome Measures to Ease Market Turmoil

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