T

he US Federal Reserve'€™s decision to keep its interest rates near zero percent has come as welcome news for Indonesia, with analysts saying the country will now have time to mend its economy.

However, they warned that with the Fed keeping the rate steady, uncertainty would continue to cloud the Indonesian financial market, which is increasingly vulnerable to fluctuations in regional markets.

The rupiah closed at 14,374 per US dollar on Friday, strengthening by 0.6 percent from the day before, the first time that the currency had strengthened against the greenback in a week, according to data from Bloomberg.

In the stock market, the Jakarta Composite Index (JCI) also gained to close at 4,380.32, although there was still a net sell of Rp 464 billion (US$32.08 million) on Friday. The '€œhold'€ decision spelled positive news for the bond market too, with Bloomberg reporting a drop in the extra yield that investors were demanding for Indonesia'€™s $2 billion, 4.125 percent, 2025 notes.

The yield dropped nine basis points (bps) to a one-month low of 240 bps, Bloomberg said, quoting data from Nomura Holdings Inc. '€œNo Fed hike with dovish guidance is the most positive outcome that could have occurred for emerging-market assets,'€ Nomura credit analyst Gaurav Singhal said in the report.

'€œWe expect a relief rally, with Indonesia and Malaysia sovereign credits to benefit the most from this outcome because of high foreign ownership of their securities,'€ Singhal added. The latest statistics provided by the Finance Ministry reveal that foreign investors accounted for 37.8 percent of total securities ownership as of Sept. 15.

Nomura predicted that Indonesia would see a reversal in its debts after spreads reached their highest last month on the back of slowing economies in Southeast Asia, the yuan devaluation and the outlook for higher US interest rates.

Deutsche Bank chief economist Taimur Baig said that the Fed'€™s decision to keep the interest rate steady had provided a temporary respite for Asian markets, but insisted that Asian governments must continue to support domestic demand through fiscal policy.

He wrote in a research note that the change of a foreign exchange (FX) crisis-induced rate hike scenario in economies like Indonesia was extremely remote and that Bank Indonesia (BI) was likely to cut rates in the first half of 2016 if the rupiah stabilized.

Bank Mandiri chief economist Destry Damayanti shared Baig'€™s view, saying that the Fed'€™s decision had lessened pressure on the rupiah as well as the central bank, because the latter was no longer compelled to raise its own benchmark rate to prevent massive capital outflows.

'€œHowever, the uncertainty will now go on longer. People can get jittery anytime, even though it'€™s just a matter of sentiment,'€ she said.

Bank Danamon economist Anton Hendranata also highlighted the longer period of uncertainty, saying that '€œonly God and [the Fed chairwoman] Janet Yellen know when the rate will rise'€.

This lack of clarity, according to Anton, will lead the rupiah to continue to fluctuate for the time being.

BI senior deputy governor Mirza Adityaswara said that clarity over the hike timing and its magnitude were more important than any rise itself.

'€œFor stability and certainty, emerging markets hope that the Fed will jack up its rate just once or twice and then give signals to the market that it will temporarily stop,'€ Mirza wrote in a text message.

Maybank Kim Eng Securities president director Wilianto Ie said earlier that the Fed decision would not weaken the rupiah.

'€œUnlike the Malaysian ringgit, the rupiah depreciation has been going on since 2012. So it'€™s all about [market] confidence and sentiment in the rupiah, which is quite low, rather than the Fed factor,'€ Wilianto said. '€œWhat the government needs to ensure is that market confidence is not further eroded,'€ he added.

Separately, Coordinating Economic Minister Darmin Nasution and former finance minister Chatib Basri '€” now a senior fellow at the John F. Kennedy School of Government at Harvard University '€” said that the Fed rate was beyond the government'€™s control, calling on leaders, ministers and officials to focus on efforts to shore up the Indonesian economy.