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View all search results'Fed Rate hike in 2016 will disrupt Indonesia for 3 years'
Years of impact : Coordinating Economic Affairs Minister Darmin Nasution warns of the negative effect of the gradual increases of the Fed Funds Rate on countries that are experiencing current-account deficits, such as Indonesia
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Coordinating Economic Affairs Minister Darmin Nasution. (JP/P.J. Leo) (JP/P.J. Leo)
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span class="caption">Years of impact : Coordinating Economic Affairs Minister Darmin Nasution warns of the negative effect of the gradual increases of the Fed Funds Rate on countries that are experiencing current-account deficits, such as Indonesia. The measure will put pressure on Indonesia's economy at least until 2018. (JP/P.J. Leo)
The government has predicted that the gradual Fed Funds Rate hike, which the US central bank, the US Federal Reserve, is going to start imposing in 2016, will put pressure on Indonesia's economy at least until 2018.
According to Coordinating Economic Affairs Minister Darmin Nasution, the gradual increases of the Fed Funds Rate would trouble countries that are experiencing current-account deficits, such as Indonesia.
"We should be aware that the Fed will increase its interest rate by 100 basis points in a year. It means there will be pressure, particularly in countries that have current-account deficits. There will be a constant pressure and this can last three years until 2018," said Darmin in a press gathering in Banten on Thursday night.
Darmin believed the Fed will increase the rate in each quarter of 2016, in the amount of 25 basis points per quarter. This monetary policy would lead to rupiah volatility in the short-term. In the medium term, he said, the government must improve investment to boost economic growth.
"To deal with the medium-term effect, we must answer it with better economic growth. If our economy is stagnating while the current account continuously records a deficit, it's going to be a big problem. The key is investment growth," he told journalists.
The latest December Fed Funds Rate increase, according to Darmin, made no significant impact as it had been previously predicted. "The markets already adjusted to the interest rate increase and we can see throughout the world there was no significant [benchmark interest rate] increase."
On Thursday, Bank Indonesia (BI) announced that it would maintain the benchmark interest rate at 7.5 percent, responding to the increased Fed Funds Rate of 25 basis point to a range of 0.25 percent to 0.5 percent.
The measure ends the US' seven-year period of near-zero borrowing rates. However, the Fed's statement suggested that the rates would remain low, saying it only expected gradual increases. (ags)(+)
