JAKARTA. The Fed has ended the era of low interest rate, as this US central bank increased the benchmark interest rate to 0,5%-0.75%, Thursday (15/12).
Market participants have likely anticipated The Fed’s decision. Therefore, in average the indexes of Asia’s stock exchanges only shrank less than by 1%, although Hang Seng index corrected by almost 2%.
However, markets need to anticipate the subsequent plan of The Fed to increase the interest rate up to three times in 2017. Lack of anticipation will destabilize Indonesia’s financial market. Let alone, the President Trump’s economic program is predicted to cause a higher inflation rate in the US (United States of America). During the campaign period, Trump promised to increase infrastructure and military budgets, as well as provide a large scale of fiscal stimulus.
However, analysts estimate that The Fed will not be that aggressive. Financial Market Analys of Bank Mandiri Rully Arya Wisnusubroto said that The Fed is likely to increase the interest rate at maximum two times up to 1.25%”. Under the assumption, he predicts that the rupiah exchange rate will move around Rp 13,000-Rp 13,800 per US dollar, or in average of Rp 13,400 per US dollar in the next year.
However, Head of Research at Universal Broker Indonesia Satrio Utomo estimates that stock market may experience capital outflows until the inauguration of Donald Trump as the US president. During the recent four months, foreign investors have booked a net sell of Rp 21.82 trillion. However, along this year the foreign investors have booked as much as Rp 16 trillion net buy.
“We have solid fundamentals. Government remains alert in maintaining rupiah stability. Unlike China that weakened yuan, rupiah remains stabke at around Rp 13,000 per US dollar, as targeted by State Budget,” Satrio said. He also estimates that Jakarta Composite Index (JCI) will move at the range of 5,800-6,300 in the next year.
Domestic bond market does not worry of The Fed’s decision. Analyst at Capital Asset Management Desmon Silitonga said that investors actually had anticipated The Fed’s decision since sometimes ago. Foreign investors have booked a worth of Rp 19.58 trillion net sell of their assets in government bonds in Novembr 2016. Therefore, the government bonds market just slightly corrected during this week.
Nonetheless, Indonesia needs to monitor The Fed’s policies in 2017. “In the next year, the US will focus in improving the domestic economy,” said fixed income analyst at MNC Securities I Made Adi Saputra. (Muhammad Farid/Translator).
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