Bank Indonesia Prepares for Fed Rate Hike

“The probability is 90 percent, that’s why all market participants are getting ready,” the former finance minister said yesterday.

Agus said that although a Fed Rate hike will likely be followed by a rupiah correction, the impact will not negatively impact the domestic monetary situations.

He claimed the country’s economic resilience is quite strong, referring to the sustained economic growth in the range of 5.0 percent. Similarly, inflation has been within a safe range of three to five percent in the last two years.

Other defensive factors are Indonesia’s healthy balance of payments that goes well in hand with a controlled current account deficit. As of February 2017, the country’s balance of payment was at a surplus of US$4.5 billion. The foreign exchange reserve was around US$116.9 billion.

Bank Mandiri chief economist Anton Gunawan predicts the Fed Fund Rate will rise three times this year. However, he said there is a tendency that investors will prefer Asian markets rather than return to America’s.

Anton said the rupiah could still see a fairly stable exchange rate to trade between Rp13,200 and Rp13,400 per US dollar.

“The hedging liability also serves to reduce pressure on the rupiah,” he said.