JAKARTA (TheInsiderStories) – The Federal Open Market Committee (FOMC) decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent in the September meeting. Stock markets reacted badly on the decisions and experienced sold off.
Based on the Fed announcement on Nov. 8, FOMC rated that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined.
The Board said, household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Board will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.
The Fed monetary stance will affect the other central banks decision in the region. This week, Indonesia, Thailand, and Philippines will decide the interest rates amid cautious of Fed rate increase by the end of the year.
According to analysts, Bank Indonesia (BI) is predicted to hold its 7-DRR rate at 5.75 percent. While Bank of Thailand is expected to increase its rate by 25 basis points (bps) to 1.75 percent, and there are mixed views over Bangko Sentral ng Pilipinas move to increase or hold its interest rate at 4.5 percent.
The indicators showed by BI’ Governor Perry Warjiyo last week. He stated the central bank to cut its 2018′ inflation forecast from 3.4 percent to 3.2 percent. This figure is lower than the average inflation for the past three years which was as high as 3.32 percent.
The correction of the target refers to the latest developments in inflation, he added. From the results of the price monitoring survey until the first week of November, Warjiyo said, the inflation in this month is estimated to reach 0.16 percent and January to November will reach 2.39 percent and November’s annual inflation will reach 3.12 percent.
Other economic data will give an influences to BI’ monetary stance is Current Account Deficit (CAD). In the third quarter (3Q) of his year CAD swelled to US$8.8 billion or 3.37 percent of gross domestic product (GDP), higher than the previous quarter’s deficit of US$8 billion, or equal with 3.02 percent of GDP.
This CAD increase was affected by the decline of goods trade balance and higher service balance deficit. With insufficient capital and financial account surplus to finance CAD, Indonesia Balance of Payment (BoP) recorded at US$ 4.4 billion deficit.
While, foreign exchange reserves by the end of September 2018 was $114.8 billion, or equivalent to finance 6.3 months of imports and government foreign debt, still considered above international adequacy standard of 3 months of imports.
These current economic data will influences the monetary stance of Indonesian central bank in two days meeting starting Nov. 14 to 15. The strenghthening of Rupiah also will determined the board of governor decision.