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The Foreign Exchange Reserves May Potentially Decline, While The Rupiah Weakens Due To Global Economic Uncertainties

Indonesia's foreign exchange reserves are anticipated to decline due to uncertainties in the global financial markets and economy. 

Josua Pardede, Chief Economist at Bank Permata, believes that risk-off sentiment will intensify under the administration of U.S. President Donald Trump. 

Trump's domestic-focused policies are expected to trigger trade and currency wars, leading to higher inflation in the U.S. and prompting the Federal Reserve to maintain a prolonged higher interest rate policy. 

In this context, the risk of prolonged economic stagnation in China, along with these factors, is likely to increase demand for safe-haven assets, particularly the U.S. dollar, while also encouraging capital outflows from emerging markets, including Indonesia.  

Furthermore, Josua noted that Trump's protectionist policies could hinder the progress of disinflation in the U.S., thereby limiting the Federal Reserve's ability to further reduce interest rates, which would enhance the appeal of U.S. assets. 

"Considering the current dynamics of the global economy and financial markets, we project that Indonesia's foreign exchange reserves will range between USD 152 billion and USD 156 billion by the end of 2025, compared to USD 155.72 billion at the end of 2024," Josua stated to Kontan on Friday, February 7. 

Additionally, the exchange rate of the rupiah is expected to depreciate to approximately IDR 16,300 to IDR 16,700 per U.S. dollar by the end of 2025, down from IDR 16,102 per U.S. dollar at the end of 2024. 

Josua also predicts that Bank Indonesia will continue to utilize its foreign exchange reserves to intervene in the foreign exchange market to stabilize the rupiah, which may gradually deplete the reserves.  

"Nevertheless, Indonesia's relatively solid economic fundamentals and favorable prospects compared to other countries in the region may still attract capital inflows," he concluded. 

Tag: Global Financial Markets Rupiah