USD/IDR holds gains near 16,300 as Bank Indonesia delivers a quarter basis point rate cut
- USD/IDR maintains its position as Bank Indonesia decided to cut its benchmark interest rate by 25 basis points in July.
- The Trump administration decided to impose a 19% tariff, against the previous 32% threat, on Indonesian goods.
- The US Dollar may further appreciate as June inflation report raised the likelihood of Fed maintaining its current interest rates.
USD/IDR extends its winning streak for the third successive session, trading around 16,300 during the European hours on Wednesday. The pair holds gains following the Bank Indonesia (BI) interest rate decision.
Bank Indonesia cut its benchmark interest rate by 25 basis points to 5.25% at its July policy meeting, in line with market expectations. The decision reflects the central bank’s outlook that inflation for 2025–2026 will remain within its target range of 2.5% ±1%.
On Tuesday, US President Donald Trump announced a new trade agreement with Indonesia that sets a 19% tariff on Indonesian goods entering the United States (US), down from the previously threatened 32%. The agreement is part of the administration’s broader effort to renegotiate trade deals and reduce the US trade deficit. It also includes substantial commitments from Indonesia to increase purchases of American products.
The USD/IDR pair may further appreciate as the US Dollar (USD) may regain its ground, as the US inflation report for June has renewed concerns over the prospect of prolonged high interest rates from the Federal Reserve (Fed).
The US Consumer Price Index (CPI) climbed 2.7% year-over-year in June, as expected. Core CPI came in at 2.9%, just below the 3.0% forecast but still notably above the Federal Reserve’s 2% target. Traders await the US Producer Price Index (PPI) later on Wednesday, followed by the Fed Beige Book and Industrial Production.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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