The Governor of Federal Reserves Jerome Powell - Photo: Privacy

JAKARTA (TheInsiderStories) – Good Morning. As expected, the Federal Reserve delivered the third rate hike this year and made a statement that can be interpreted as hawkish and reinforced expectations that a fourth hike will take place in December by the majority of market participants.

The world’s most influential central bank raised the reference Fed Fund Rate by 25 basis points (bps) from 2 percent to 2.25 percent range, which is the highest level since April 2008. The decision to hike rate is voted by all nine voting members of the Federal Open Meeting Committee.

The Fed’s statement also dropped the word ‘accommodative” on its monetary stance, suggesting that the current policy rate is sufficient to support the so-called maximum employment and meet the 2 per cent inflation goal.

The Fed also said that the United States (US) labor market continued to strengthen and that economic activity has been rising at a strong rate, while ‘risks to the economic outlook appear roughly balanced’.

In the press briefing, Fed Chair Jerome Powell says the decision to drop the word ‘accommodative’ does not signal any change in rate hike path.

In addition, the Fed also raised its outlook on US economic growth in 2018 to 3.1 percent from 2.8 percent earlier. The outlook on 2019 is also raised by 0.1 percentage point to 2.5 per cent. The Fed’s policy decision had been largely factored in by market participants.

Back to the domestic market, the Jakarta Composite Index ended slightly down by 1.1 points at 5,873, with foreign investors net bought equity worth Rp233 billion. While, the Rupiah, though, was under pressure, ending at 14,938 per US$1 versus 14,893 per US$1.

The Fed’s decision and remarks will hold a significant influence on policy decision on Bank Indonesia (BI), which is scheduled to deliver its statement and hold press conference on Thursday at 1400 WIB.

BI is expected to raise the reference seven-day reverse repurchase rate by 25 bps to 5.75 percent, which would be the fifth for 2018. BI has shifted its monetary stance to tight from previously accommodative as external factors trigger volatility in the domestic financial market.

From politics, the ruling coalition secured another major backing after Yenny Wahid, the daughter of late president Abdurrahman Wahid, officially declared her supports for President Joko Widodo’s re-election bid. Yenny also brings with her a number of influential clerics and influential figures which would certainly raise Widodo’s appeals among the members of Nahdlatul Ulama.

From the other side, the opposition camp secured supports from cadres of Golkar Party, which supports Widodo, though the party’s top brass was quick to dismiss the backing as anything substantial.

A series of political survey showed that the incumbent’s Vice President Candidate Ma’ruf Amin has higher electability than the challenger nominee Sandiaga Uno, though the gap is more narrow that those between Widodo and the opposition’s Prabowo Subianto.

May you have a profitable day.

Written by TIS Intelligence Team

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