JAKARTA (TheInsiderStories) – Good morning. Hawkish statement by the Federal Reserve chair Jerome Powell send shock-waves through the global financial market, including emerging markets like Indonesia where both equity and currency slumped.
Powell said that the Fed Fund Rate is still at accommodative level but it’s gradually moving towards a neutral rate. He said, the Fed may go past neutral but is a long way from neutral at this point. Accommodative rate is no longer appropriate for the US economy, according to Powell.
Market participants had been speculating about what is the level of neutral rate by the Fed. According to the latest projections by the Federal Open Market Committee, the Fed Fund Rate will continue to rise until reaching 3.4 percent before hitting a pause.
Currently, the Fed Fund Rate is set at a range 2 percent to 2.25 percent.
Powell statements strengthened market expectations that the world’s most influential central banks will raise rate again in December, which would be its fourth in 2018.
The hawkish remarks also pushed yields on 10-year US Treasury to 3.21 per cent, the highest level in seven years, prompting capital outflow from emerging markets.
The Rupiah slumped to 15,133 per US$1 from 15,088 per US$1, according to Bank Indonesia’s (BI) reference rate. Foreign investors pulled out Rp1.2 trillion (US$82.76 million) from domestic equity, pushing the Jakarta Composite Index down by 1.9 percent at 5,757.
BI’s Senior Deputy Governor Mirza Adityaswara said the Rupiah is still at safe level and the fall is broad-based in other currencies. He said domestic financial system remains stable as seen in the level of capital adequacy ratio which is above 20 per cent.
Adityaswara said the domestic supply and demand dynamics of the greenback is still normal.
Finance Minister Sri Mulyani Indrawati added the slump is largely due to external factors and the government had taken a series of measures to reduce the volatility. She is expected to hold a press briefing on the rupiah slump today.
The release of Indonesia’s foreign exchange reserve data by BI today may affect the financial market.
Former Finance Minister Chatib Basri said there’s one more policy action that the government can take to reduce the volatility that is raising the price of fuel. Basri, however, insisted that the recent slump is not an indication of an impending crisis.
“Our current account deficit widened largely because the deficit in oil and gas,” said Basri, adding raising prices of fuel would reduce demand for imported oil.
Moving to politics, the ruling coalition continued to pile on the opposition’s political blunder by defending a false allegation against the government. Ratna Sarumpaet, a political activist who was a member of the opposition camp, had admitted that she made false stories of being assaulted, which was subsequently followed by retractions and public apologies by key politicians who previously defended her story including the opposition’s Presidential Candidate Prabowo Subianto.
The Police had also arrested Sarumpaet, while boarding on a plane heading for Chile, for spreading false information. The ruling coalition continues the offensive after the blunder, filing police investigations against opposition politicians and even calling Subianto to withdraw from the presidential race.
May you have a profitable day.
Written by TIS Intelligence Team