Federal Open Market Committee (FOMC) decided to kept the Fed Funds Rate at 0 - 0.25 percent, confirms the intention of the central bank to prop up the post-COVID-19 economy, said the central bank yesterday (06/10) - Photo by the Federal Reserve Office

JAKARTA (TheInsiderStories) – Federal Open Market Committee (FOMC) decided to kept the Fed Funds Rate (FFR) at 0 – 0.25 percent, confirmed the intention of the central bank to prop up the post-COVID-19 economy, said the central bank yesterday (06/10). The policymakers also committed to using all instruments to recover the economy from the epidemic.

Chairman of Federal Reserves (Fed) Jerome Powell in a video press conference early this morning said, the policymakers expect the benchmark interest rate to remain near zero until the end of 2021.

He stated, the Fed also remains committed to supporting the distribution of housing loans and business loans through the purchase of debt securities and property-backed securities. Its also continued open market operations by offering large repos with long tenures. While, New York Federal Reserve set to purchase of debt securities up to US$80 billion per month and purchase of asset-backed securities worth of $40 billion.

Powell asserted, the unemployment rate in the US is expected to fall to 9.3 percent in the fourth quarter of 2020 from May at 13.3 percent. The unemployment rate is predicted continue to fall to 6.5 percent next year.

The May’ employment report in which there were 2.5 million additional jobs could be the lowest point in the labor market. Powell warned the labor market needed time to recover. He assumed, there were many people who lost their jobs and there might not be any more jobs in the industry for them at some time. In this year, the Fed also sees the US economy to contract 6.5 percent before rising with growth of 5 percent in 2021.

According to chief economist of PT Bank Mandiri Tbk, Andry Asmoro, the decision of the Fed will be keeping the FFR at a low level until 2022 and is committed to increasing the purchase of assets in the next few months. He rated, the dovish policy stance will help Bank Indonesia (BI) to maintain its accommodative monetary policy.

He predicted, the central bank to keep interest rates unchanged at the level of 4.50 percent by 2020. According to him, there were two reasons which made the pruning space limited.

First, the potential risks in the balance of payments in 2020, especially on the side of the financial balance that could trigger rupiah stability. He addded, “We argue that the appreciation of the Rupiah is currently unsustainable because it is supported by hot money, not foreign direct investment.”

Second, the widening of fiscal deficit to 6.34 percent of gross domestic products will trigger an increase in financing needs going forward. BI is scheduled to hold a board of governors’ meeting on 17 – 18 June.

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