The
coordinating Minister of Economy Darmin stated that increase of FFR by the fed
would assure certainty above the prospect of global economy.
Meanwhile the World Bank warned the
risk to be faced by developing countries if FFR was increased, i.e. backflow of
foreign capital.
Central banks of the world also
wished there was certainty of creased FFR. The sooner increased the better and
the clearer the situation would be. Market players must have anticipated increase
of FFR by the Fed. Moreover the issue of interest adjustment had been a waiting
game for almost year.
Even of the Fed increased FFR, it
was no guarantee that Indonesia’s economy would be more controlable.
The Minister of Financial Bambang
Brodjonegoro agreed that one of the threats faced by national economy by end of
2015 was uncertainty of the Fed’s action.
Minister Bambang remarked further
that there was hope global economy would recover in 2016 provided there was
certainty about increased FFR by the Fed and the Government of China would not
devaluated their Yen.
The good news was that last Friday
(18/9) FORC Meeting in Washington DC finally decided to maintain FFR at 0.25%.
As known, that interest level has
been maintained by the Fed since 2008 last. Governor of the Fed Janed Yallen
said that increase of FFR would be suspended until there was further evaluation
of the US economic condition. The Fed’s Committee referred to some indicators,
i.e. the condition of laboir market, inflation pressures and domestic and
international financial development.
The Fed had lowered projection of
FFR increase from 1.25% to 0.62% by end of 2015. To America, the near zero
level interest which had been maintained since around 8 year was seen as an
effective way to promote US economy.
Beside the fed some central banks of
the world were maintaining their benchmark rate at near zero percent like the
Central Bank of Europe (ECB) and Bank of Japan (B o J) but they were less
fortunate than the Fed who had posted US bettered economy.
BOJ was still troubled by the need
to scheme up extra stimulus to prevent growth contraction in this third quarter
while ECB would still have to step up their money printing program.
Although US economy was gradually
showing improvement, the Fed saw that external pressures from China would still
burden US and global economy, which was the reason why the Fed was not in a
hurry to increase FFR.
As known, economic slowdown in china
had affected economy of the emerging market while commodity prices of the world
kept down turning. The situation in America today was in fact inconvenient
because the policy to increase or lower benchmark rate was in fact run for two
objectives.
Fristly,
to tame inflation, Secondly to enhance economic expansion it was the ideal
conditional which had failed to persue. In the long run, if the zero level was
maintained, the potential of deflation in the USA remained high, just like the
way it happened in Japan and Europe today.
Separately the World Bank warned of
the risk faced by developing countries in case there was tight policy run by
the US Government, i.e. capital outflow. If the tight policy was accompanied by
yield of bonds in the long run the way it happened during the “Taper tantrum” of
2013 reduced capital flow the developing countries could be great.
The term “Taper tantrum” had been
frequently used to describe how the market reacted to the comment of the
Governor of the Fed at that time, Ben Bernanke, that Fed might reduce bond
buying which was part of Quantitative Easing.
The survey showed leap of 100 basis points
in US long term return the way it happened during “Taper tantrum” might reduce
aggregate of capital flow to the emerging market by up to 2.2% of their GDP.
On such ground meeting of the Board
of Government of BI rate at 7.5%. Deposit Facility was also held at 5.5% and
lending facility at 8%. The decision was in line with effort inflation to around
4% + 1% in 2015 and 2016.
BI also reviewed China’s policy to
devaluate Yuan which generated the effect of price downturn. Deflation
was also happening in many countries including the USA they imported in vast
amount from China.
Now that it was certain the fed
would keep interest-rate at zero percent, the market started to look forward to
the next step of the Indonesia Government. As known, the chapter 1 Policy
Package launched by the Government by the Government was not strong enough to
revitalize market.
Both rupiah and IHSG at BEI were still
struggling to strengthen. Ironically it happened when Indonesia’s Trade Balance
on August 2015 posted surplus supported by good performance in the non oil-gas
sector.
Indonesia’s trade Balance posted
surplus of USD 0.43 billion, less than the surplus of Trade Balance was on
account of import of non oil-gas commodities which was higher that the increase
of non oil-gas export.
Import of non oil gas in August 2015
was posted to increase by 30.48% (m t m) jacked up by import of iron and steel,
plastics, machineries and electrical equipments. Import increase in those
commodities was early signal of growing economy in the future.
On the other hand, increase of non
oil-gas export by 11.23% (m t m) constituted of manufacturing products:
jewelry, automotives etc, machineries and nature products: coffee, tea, spices,
rubber and rubber goods.
Better Trade Balance of oil-gas
product was supported by export amid down turning import. Deficit in trade
balance in oil gas was posted at USD 0.58 billion, lower than the previous
months at USD 0.87 billion. The downturn was due to export of oil-gas was down
by 7.67% (m t m) while import of oil-gas was down by 8.12% (m t m). BI saw that
surplus of Trade Balance in August 2015 was positive in supporting transaction in
current transaction of Q III 2015 which improved.
The
Money market
Meanwhile sentiment from The Fed’s
action would suppress Rupiah as there was lack of positive sentiment from the
internal although Rupiah managed to strengthen for a moment last Thursday
(17/9).
Lack of domestic sentiment led
market players to do act selling. Announcement of FOMC meeting did not
automatically strengthen USD in the shadows of Euro and Pound sterling
strengthening. Still the condition was not good enough keep Rupiah stay in the
green zone.
During transaction on Thursday (17/9)
rupiah managed to strengthen by 12 points become Rp.14.447 against the previous
position of Rp.14.459 per USD. Meeting of the Board of Government of BI to
maintain BI rate at 7.5 indicated that inflation was still under control.
The situation had positive impact on
Rupiah. However the main sentiment was still from the external due to the Fed’s
policy.
Somehow
most of the decision markets believe FFR would be increase this year in view of
US economic recovery.
The fed maintained benchmark rate at
near zero percent, as they feared economic slowdown happening in china lately
might injure US economy. Janed Yallen and FFR could be increase before year and.
However decision markets were still anxious
about spill over of China’s problem of the emerging market. The fed realized
about capital outflow from developing countries, pressures on their currencies
and anxiety over their future performance if the Fed increased FFR.
After being indecisive for many
years since 2008, the percent of increased FFR shook the global market; the
World Bank IMF urged the Fed to be careful when tightening grip on credit.
Yellen also stressed that of
important pivots for the policy, i.e. the labor market – had strengthened, and
the other pivot, inflation was way too low. But such was due to the “temporary”
effect such as steep downturn of oil price. FOMC disclosed that expenditure for
household and business investment had increase but export “weakened”.
Yellen also stated that the labor
market strengthen since to FOMC meeting in July, weakening lessened since early
this year. The Fed saw all that, and US economy performance showed impressive
performance whereby to create employment opportunities thanks to high domestic
demand.
Somehow the fed had anxiety about
the negative impact of global financial condition. One FOMC official said that
FFR would be increased this year’s end.
O 17 the Fed’s officials at the
meeting, 13 signaled they were expecting increase of FFR this year end, most of
them predicted around 0.25% to 0.50%. The decision to maintained FFR was not
surprising to many analysts.
In fact the position of USD was in
weekly weakening last week against some currencies of the world like Euro and
Yen. USD position was at USD 1.1414 per Euro which was an upturn of 0.2%
against closing session when USD weakened by 1.3%. Meaning over the week USD
already weakened by 0.7% against Euro.
Against Yen, USD was at Ұ 120.13 against the
previous position of Ұ120.01 USD was posted to weaken by 0.4% over the week.
Weakening of USD was also apparent in Bloomberg Spot Index which at that time
was at 1.196.15. Previously the position of USD Index was at 1.193.93, the lowest
since August 24 and down by 0.7% last week.
USD never managed to rise ever since
the Fed maintained benchmark rate near zero percent. The Fed’s action and wild
movement at the stock market was beyond the time market expectation. So USD
would be weak for the time being. It seemed reasonable that Rupiah was
predicted to improve (18/9) as BI maintained BI Rate at 7.5%.
Rupiah was at the level of Rp.14.327
per USD gaining strength against the position the position at previous closing
session at Rp.14.446 per USD. During closing session on Thursday (17/9) rupiah
value against USD was seen to be stationary since previous state (17/9).
Rupiah touched lowest level since
1998. Tug of War of sentiments made Rupiah stagnate. Positive sentiment came
from domestic stock market. IHSG strengthen quite significantly at 4.378.39
points. Strengthen of domestic stock market was related to BI’s policy to
maintain benchmark rate.
At that time market players were
waiting for the fed’s announcement of their policy. Last week (18/9) rupiah was at support level
of Rp.14.350 and resistant level at Rp.14.000 per USD, Over the week, Rupiah
was projected to strengthen at Rp.14.150 – Rp.14.300. – per USD in the post the
fed and BI decision.
Some economic saw that in fact BI had
the chance to lower benchmark rate because of bank’ credit slowing down due to
economic slowdown Somehow BI choosed to maintan BI rate while anticipating the
Fed’s decision who planned to increase FFR this September. It was this
dilemmatic condition that caused it to be too risky for BI if they changed the
present benchmark rate.
The same was with the condition of
rupiah today; it was more governed by global sentiments such as increase of FFR
and devaluation of Yuan. On the domestic side was no positive sentiment either
was already launched by President Joko widodo - it indicated market’s doubt of
The Government’s ability to execute the Policy.(E)
Business New - September 23, 2015
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