Photo by The Federal Government

JAKARTA (TheInsiderStories) – The Euro slipped in value on Monday, after German Chancellor Angela Merkel won a fourth term, as her party, the Christian Democrats (CU), picked up 3.25 percent of the votes in Sunday’s election.

The Euro was down 0.2 percent, at US$1.1930, putting more distance between a 2-1/2-year high of $1.2092 reached on Sept. 8, when a European Central Bank policy meeting left currency bulls optimistic the ECB would begin tapering its big stimulus program.

Earlier, the dollar index opened with a gain at a 92.390 levels, after trading on Friday (22/9) ended at 92.171.

Merkel’s victory is no surprise. Her campaign was designed to increase German power by being Europe’s strongest economy, with an unemployment rate at only 3.7 percent and the fastest-growing GDP among G7 industrialized nations.

Dody Budi Waluyo, Bank Indonesia (BI) executive director of economic and monetary policy said Merkel’s victory has brought optimism to political and economy stabilization at Europe.
The victory also brings optimism the integrity of the Eurozone region underpinned by political stability in Germany will accompany the improvement of economic recovery in the region.
“Euro is expected to be stable against other strong currencies including the rupiah,” said Dody to The Insider Stories.

After Bank Indonesia cut its policy rate (BI 7 day-reverse repo rate/BI 7DRR) by 25 basis points to 4.25 percent in the most recent Board of Governors’ meeting, the Rupiah pulled back on Monday market opening.

Rupiah interbank transaction exchange rate in Jakarta, Monday morning moved higher by 36 points to Rp13,276, compared to the previous position of Rp13,312 per US$.

Ciptadana Research mentioned they already expected another rate cut in the remainder of 2017, after a previous rate cut in August, but the execution was sooner than we initially thought, in 4Q17.

The BI 7DRRR cut was also followed by a further cut in deposit facility, to 3.50 percent and the lending facility, to 5.00 percent. However, after easing monetary policy, fiscal policy should begin to move in the same direction, in order to be more effective.

An expansive fiscal policy in government expenditures, as demonstrated in the revised 2017 state budget, has been responded to with two policy rate cuts from Bank Indonesia which will theoretically stimulate the domestic economy.

Writing by Elisa Valenta, Email: elisa.valenta@theinsiderstories.com

 

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