I

ndonesia is likely to benefit greatly from the monetary easing policy announced by the European Central Bank (ECB) last week as the unprecedented negative interest rate applied in Europe will encourage fund managers to move their portfolio investments to the high-yield emerging markets.

Scenaider CH Siahaan, the Finance Ministry's director for strategy and debt portfolio, has predicted that interest-rate cuts delivered recently by the ECB would leave the global economy awash in more liquidity.

For fund managers, lower interest rates in European countries would make assets there less attractive, eventually pumping more funds to emerging economies, which offer greater returns.

'Fund managers then will diversify investments, as they will boost the holdings in high-yield economies, such as Indonesia, in their portfolio,' Scenaider said in an interview recently.

ECB, one of the world's most influential central banks, announced last week a historic move to cut its deposit rate to minus 0.1 percent from zero to stimulate the lagging economic recovery and counter deflationary threats faced by most of the 18 eurozone economies.

The rate cut was delivered after the region faces the threat of too low inflation that is counterproductive to economic growth. The central bank forecast price levels to reach only 0.7 percent this year, well below what ECB President Mario Draghi has called 'the danger zone' level of below 1 percent.

The negative interest rate ' meaning that European lenders are now charging fees for customers depositing their cash ' was also followed by other stimulus measures: a cut in ECB benchmark interest rate to 0.15 percent from 0.25 percent, as well as a cheap bank loans scheme.

A much-anticipated quantitative easing program, or outright asset purchases to boost liquidity, was also believed to be in the wings, as Draghi had said that the stimulus package was not finished yet.

Meanwhile, Scenaider argued that extra liquidity in Europe would help Indonesia in its historic first offering of euro-denominated bonds to European investors this year, likely to be targeted in an amount equivalent to US$1 billion, according to him.

'Lower ECB benchmark rate might help push down the yields, meaning that we could get lower borrowing costs,' he said.

Barclays Bank currency strategist Koon Chow argued that ECB's actions were 'more aggressive than anticipated by investors' and they would create a helpful tailwind for emerging markets, which would benefit from a cheap funding currency and reduced macro risk from the European region.

'The ECB action creates a major boost to risk sentiment, which is supportive of risk appetite for high-yielding assets, including the Indonesian rupiah,' Benoit Anne, the head of emerging markets with Société Générale in London, wrote in an email interview.

Following the announcement of the ECB's monetary stimulus measures, the rupiah ended its four-day losing streak as it strengthened 0.4 percent to 11,823 per US dollar on Friday.

Nevertheless, Bank Indonesia (BI) Deputy Governor Perry Warjiyo said that policymakers must guard against complacency as there were still threats of capital outflows stemming from the market's expectations that the Federal Reserve, the US central bank, might hike its interest rates.

'In emerging markets, the flows of capital depend more on developments in the US interest rate, which is more influential compared to Europe's,' the BI deputy governor told The Jakarta Post.

Perry predicted that the benchmark Fed funds rate would be raised from the current 0.25 percent to 1 percent by the end of next year, a situation that would make dollar assets more attractive and consequently reverse capital flows to the US.