Photo by DBS Group

JAKARTA (TheInsiderStories) – Although the Federal Reserve has signaled that it will hold the key benchmark rate in consonance with market consensus, but the Development Bank of Singapore (DBS) Bank economist predicted that there will be a change of Fed rate this year, told the DBS Asian Insight Conference in Jakarta, on Thursday (01/31).

“The market consensus is there will be no rate hike from The Fed, but I think there will be a single hike this year,” said DBS Chief Economist and Managing Director Taimur Baig, pointing to the cause of economic conditions.

Previously, Federal Reserve opted not to raise interest rates in a range between 2.25 percent and 2.5 percent, during its policy meeting this week. It also pledged to move patiently, seeing economic conditions, such as sluggish inflation, slowing growth in Europe and China, and the possibility of another federal government shutdown.

Federal Reserve Governor Jerome Powell stated that higher interest rate may end sooner than expected. But Powell claimed that economic growth remained solid, as he projected the growth will continue.

“The case for raising rates has weakened somewhat,” said Powell.

As quoted from Bloomberg, the decision came along with a separate statement on the Fed’s balance sheet indicating that policymakers will consider adjusting the reduction of the central bank’s bond portfolio if conditions warrant.

Officials also said they expect to operate with an ample supply of bank reserves, an indication that the balance sheet will remain sizable once its reduction is complete. Moreover, the statement noting said that it is appropriate at this time to provide additional information regarding the plans to implement monetary policy over the long run.

The Fed’s balance sheet consists mostly of a mix of Treasuries and mortgage-backed securities which it purchased in an effort to lower long-run rates and stimulate the economy during and after the financial crisis. At its peak, the balance sheet ran to $4.5 trillion after being less than a $1 trillion before the stimulus program began.

In the statement, The Fed said that it would prepare to use full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.

Then it closes in a notable statement, that Fed officials have always stressed the benchmark funds rate as the key tool for policy.

Indonesia Finance Minister Sri Mulyani, in DBS Asian Insight Conference, mentioned that the 2018’s economy was facing some hard times due to global economic turmoil, which also triggered by Fed rate increase and US liquidity tightening policy.

The impact is systemic to the world economy, from emerging countries to advance countries. Mulyani highlighted that Rupiah currency exchange was also hit by the condition.

Responding to the US monetary policy, Bank of Indonesia increased 7-Day Reverse Repo Rate (7-DRR rate) by 175 basis points to 6 percent during 2018.

Mulyani claimed that Rupiah currency depreciation was not all terrible. Until the end of 2018, Rupiah depreciated by 6.9 percent.

Bank of Indonesia will have another meeting to decide the 7-DRR rate on February 20-21. Analysts predicted that the central bank will still maintain the rate at the recent point.

Written by Staff Editor, Email: theinsiderstories@gmail.com