Concerns Over The Fed's Interest Rate Hikes Pressure Rupiah

Throughout 2018, the Indonesian Rupiah exchange rate weakened, following the depreciation of several other Asian currencies such as the Peso and Rupee. According to Bloomberg data, on Wednesday, March 7th, the Rupiah was traded at Rp 13,762 per US dollar, representing a 1.5% weakening from its year-end position. This weakening of the Rupiah was the third largest among other Asian currencies. Meanwhile, the Japanese Yen strengthened by more than 6%, driven by improved Japanese exports and repatriation of currency ahead of the end of March.

Money market observer Farial Anwar stated that the weakening of the Rupiah was triggered by global factors, namely the potential for an increase in the US Federal Reserve's interest rate (Fed Fund Rate) more than three times this year. This is because the US economy is showing signs of improvement, coupled with the protectionist economic policies implemented by President Donald Trump, thus increasing the likelihood of a US interest rate hike due to rising inflation. For information, The Fed will hold a Board of Governors meeting on March 20-21, 2018.

In anticipation of the Fed's interest rate hike, according to Farial, market players preferred to hold Greenbacks (US dollars) rather than local currencies. This is reflected in the decline of the Jakarta Composite Index (IHSG) on the Indonesia Stock Exchange below 6,400 and the decrease in foreign ownership of State Bonds (SBN) on March 5, 2018, to Rp 836.94 trillion (39.05%) from Rp 869.77 trillion (41.29%) on January 31st. "The most important thing now is to prevent the Rupiah from breaking through Rp 13,800," said Farial.

(Read databoks: [The Difference Between Rupiah and US Dollar Interest Rates is Narrowing](https://databoks.katadata.co.id/datapublish/2017/12/14/selisih-bunga-rupiahdengan-dolar-as-kian-menyempit))