Rupiah Gains Ground Amid Declining Dollar Index

Jakarta. The Indonesian rupiah closed stronger on Monday, supported by a declining US dollar index. The rupiah appreciated by 92 points, settling at Rp 16,142 per US dollar after hitting a low of Rp 16,235 last Friday. Meanwhile, the dollar index fell to 107.86.
According to Ibrahim Assuaibi, Director of Laba Forexindo Berjangka, the rupiah had gained as much as 95 points during the session before closing slightly lower. "For tomorrow, the rupiah is expected to fluctuate but remain strong within the range of Rp 16,100 to Rp 16,150," Ibrahim said on Monday.
He attributed the modest trading activity to the New Year holiday season and a lack of significant economic data this week. Key releases to watch include China’s PMI factory survey on Tuesday and the US ISM survey for December on Friday.
Japan’s consumer price index (CPI) inflation in December exceeded expectations due to rising price pressures. This development keeps the possibility of a short-term interest rate hike by the Bank of Japan (BoJ) on the table.
"Some BoJ policymakers see conditions favorable for a rate hike, with one predicting action in the near term," Ibrahim explained, citing minutes from the BoJ’s December meeting.
Elsewhere, South Korea faces political uncertainty as Acting President and Prime Minister Han Duck-soo faces an impeachment vote on Friday, following a constitutional court session on a short-lived military emergency declared by President Yoon Suk Yeol. "This has deepened the political crisis, raising concerns among allies about the country’s democracy," Ibrahim added.
The World Bank has also revised its economic growth forecast for China for 2024 and 2025 but warned that weak consumer and business confidence, alongside challenges in the property sector, will remain significant hurdles next year.
On the domestic front, the government is set to implement a 12 percent value-added tax (VAT) rate starting January 2025, despite public opposition. However, Ibrahim sees the increase as a strategic move to strengthen fiscal space and support long-term economic growth, although it comes with challenges.
"The policy ensures fairness, as essential goods, healthcare, education, and public transportation services remain VAT-exempt, minimizing the burden on lower- and middle-income groups," he said.
Data from the Finance Ministry revealed that half of VAT exemptions currently benefit higher-income groups. Examples include luxury goods such as premium meats like Wagyu and Kobe beef, as well as premium services like international schools and VIP healthcare.
The government opted to raise VAT instead of income tax (PPh) to optimize tax revenue. VAT has a broader base compared to income tax, which is limited to specific taxpayers. As a result, the potential revenue from VAT is significantly higher.
Ibrahim believes the policy will strengthen state revenue in the national budget to support sustainable development, including funding education, healthcare, and welfare programs for underprivileged communities. "The government estimates additional tax revenue from the VAT increase to reach Rp 75.29 trillion," he concluded.
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