The Fed’s decision will direct market

JAKARTA. This week, the global market will be focusing on the headquarters of The Federal Reserve (The Fed), since this US Central Bank will conduct Federal Open Market Committee (FOMC) meeting.

The FOMC meeting has sparked speculations whether The Fed will increase the benchmark imterest rate or not. The Fed is scheduled to announce the monetary policy on Thursday, 15 December (Indonesian mean time). The Fed is likely to increase its interest rate.

Director of Investa Saran Mandiri and analyst at NH Korindo Securities Bima Setiaji projected that The Fed will increase the rate by 25 basis points (bps). The increase in The Fed’s rate is potentially to suppress global financial market, including Indonesia’s financial market.

In this case, stock market will experience foreigns capital outflow. However, “This will not bring significant impacts to JCI (Jakarta Composite Index), as it has been anticipated by market participants,” Hans said. Let alone, JCI has dropped by 2% during the recent one month. During the same period, the foreign net sell was Rp 14 trillion.

The increase in The Fed’s rate will also suppress rupiah. During the last week, the middle rate of BI (the Central Bank) has depreciated by 0.25% to Rp 13,337 per US dollar.

Financial market analyst at Bank Mandiri Rully Arya Wisnubroto estimated that the increase in The Fed will not be a surprise. “In fact, this will be beyond the expectations if The Fed is stagnant. Rupiah exchange rate may turn back to the level of Rp 12,900-Rp 13,000,” he said.

Despite the market will likely be volatile, Rully estimates that rupiah will move in the range of Rp 13,200-Rp 13,400 per US dollar after The Fed increase the rate.

The domestic sentiment is expected to maintain rupiah stability. Rully said that the Meeting of BI Governor Board on 14-15 December will likely decide to hold BI’s benchmark interest rate.

Analyst at Recapital Securities Kiswoyo Adi Joe estimates that the increase in The Fed’s rate will not bring significant impacts to JCI. “JCI may be corrected to 5,050, at maximum,” he predicts.

The most vulnerable sector affected by The Fed’s policy is banking. According to Bima, the capital outflow may affect the bank liquidity. “OJK (FSA or Financial Service Authority) may increase the capping of deposit interest rate, as well as implement GWM averaging. Those may be helpful,” he said. Bima predicts that JCI will be ranging at 5,350-5,400 at the end of this year. The JCI may stand at the range of 5,900-6,000 in 2017, if in average the issuers can have 10% profit growth, he added.
(Muhammad Farid/Translator)