In­done­sia urges US Fed to hurry up and raise rates

The Pak Banker - - BUSINESS -

In­done­sia wants the U.S. Fed­eral Re­serve to hurry up and raise in­ter­est rates be­cause un­cer­tainty over when it will tighten has cre­ated down­ward pres­sure on the ru­piah, the coun­try's chief eco­nom­ics min­is­ter said.

So­fyan Djalil, co­or­di­nat­ing min­is­ter for eco­nom­ics, told Reuters that he did not see the ru­piah drop­ping when the U.S. tight­en­ing does come be­cause the move has been built into mar­ket ex­pec­ta­tions, and in fact the cur­rency is now un­der­val­ued. The Fed­eral Re­serve has kept rates at a near-zero level since De­cem­ber 2008 as part of its ef­fort to spur the re­cov­ery from the 2007-2009 fi­nan­cial cri­sis.

Fed of­fi­cials are still un­de­cided on whether to raise rates next month. How­ever, data re­leased on Fri­day showed U.S. non-farm pay­rolls in­creased by 215,000 in July, point­ing to an im­prov­ing econ­omy and bol­ster­ing the case for a Septem­ber hike.

The ru­piah has been emerg­ing Asia's sec­ond-worst per­form­ing cur­rency so far this year, fall­ing by more than 8 per­cent against the dol­lar. It hit its low­est level since the Asian fi­nan­cial cri­sis in 1998 mul­ti­ple times this year, with Fri­day be­ing the latest when it touched 13,542 per dol­lar.

"I wish the Fed will de­cide and the sooner is the bet­ter for In­done­sia be­cause the un­cer­tainty gives ... the fi­nan­cial mar­ket a good le­git­i­macy to play around," Djalil said in an in­ter­view. Due to its size­able cur­rent ac­count deficit, South­east Asia's largest econ­omy was one of the worst hit by out­flows when the Fed first an­nounced a plan to ta­per off its mon­e­tary stim­u­lus in 2013. The ru­piah fell by more than 20 per­cent against the dol­lar that year and the coun­try was dubbed one of the ' frag­ile five'.

In­done­sia's cur­rent ac­count gap has shrunk since then and is pre­dicted to fall to a level the cen­tral bank, Bank In­done­sia, con­sid­ers healthy at be­low 2.5 per­cent of gross do­mes­tic prod­uct (GDP) in 2015.

Djalil said In­done­sia's fun­da­men­tals are good but the cur­rent weak­ness of the ru­piah is be­cause mar­kets have priced in a 25-50 ba­sis point in­crease in the Fed's rate. "Our ru­piah is un­der­val­ued," he said.

Bank In­done­sia ex­pects cap­i­tal in­flows af­ter the U.S. rate in­crease and that the fi­nan­cial mar­ket will see In­done­sia's pos­i­tive side again, Se­nior Deputy Gover­nor Mirza Adityaswara said.

A Bank In­done­sia of­fi­cial said the cen­tral bank, which has been pre­vented from pol­icy eas­ing to sup­port growth, will be able to cut its key rate af­ter the Fed rate hike.

Eco­nomic growth was at its slow­est in nearly six years of 4.67 per­cent in the sec­ond quar­ter, with con­sump­tion held back by high in­fla­tion and weak pur­chas­ing power due to fall­ing in­comes as a re­sult of low com­mod­ity prices. The in­fla­tion rate in July was 7.26 per­cent, above the cen­tral bank's tar­get range of 3-5 per­cent.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.