FED Interest Rate Sentiment Holds Rupiah
By : Herry Barus And Aldo Bella Putra | Sunday, April 22 2018 - 15:30 IWST
INDUSTRY.co.id - Mataram - UOB Bank Economist Enrico Tanuwidjaja believes that the sentiment of the US central bank rate hike is still one of the factors that keep the rupiah appreciating against the US dollar.
"The risks of a Fed rate hike could impact the capital reversal and have a negative impact on the rupiah," said Enrico Tanuwidjaja, who is also Head of Economic and Market Research of UOB Bank, in a journalist's edition entitled "Recent Economic Conditions and Bank Indonesia Policy Responses" in Mataram on Saturday (21/4/2018).
Currently, according to him, market expectations of the Fed rate increase is quite high, ie three to four times the increase. This is in line with the improving economy of the United States.
"Why did the rupiah move from Rp13,000 to Rp13,900 per US dollar, which means the market is looking at the Fed optimistically, so there will be a more aggressive Fed rate hike this year, the Fed is only raising once and enough to hit the market," he said.
On the other hand, he continued, the pressure factor for the rupiah exchange rate is the tariff war between the United States and China. It is expected that the sentiment of trade war is not protracted so that rupiah fluctuation can be more stable.
Nevertheless, Enrico Tanuwidjaja assessed positively to the monetary policies that have been issued by Bank Indonesia.
"We are in line with BI policy, because inflation is still within the official target limit, the relationship between rupiah and BI interest rate is quite consistent," he said.
According to him, the BI 7-Day Reverse Repo Rate level is currently sufficient to support the national economy and monetary. Currently, the BI Rate 7-day Reverse Repo Rate is at the level of 4.25 percent.
Enrico Tanuwidjaja also said that Bank Indonesia should also remain cautious in intervening against the weakening of the rupiah by using foreign exchange reserves.
According to him, preventing currency weakness is not always successful through foreign exchange reserves.
Learning from neighboring countries, Malaysia has cut its foreign exchange reserves to 30 billion US dollars. However, the ringgit remains weaker against the US dollar.
"If intervention is required, there is no ideal level of foreign exchange reserves, but it is important how many cadev we can finance imports, and our cadev is still high," he said.
Bank Indonesia noted that Indonesia's foreign exchange reserves at the end of March 2018 amounted to 126.00 billion US dollars. The foreign exchange reserve is equivalent to 7.9 months' worth of imports or 7.7 months of imports and servicing of official foreign debt, and is above the international standard of approximately 3 months of imports.
On the same occasion, Director of the Department of Economic and Monetary Policy of Bank Indonesia, Firman Mochtar expects the perception of Fed rate hike more aggressively and trade war uncertainty may ease.
"This is a global phenomenon issue, not just the rupiah but also the world currency, BI is in this position in the market to maintain its volatility in order to maintain certainty," he said.
With the exchange rate adjustment, according to him, will be able to withstand external pressure and also the competitiveness of foreign investment (PMA). (Ant)