Analysts expect no local impact from Fed rate hike<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
An imminent hike in the U.S. interest rate, most likely to be
\ndecided on in this week's Federal Reserve meeting, will have a
\nlimited impact here with Bank Indonesia unlikely to follow suit
\nin raising rates, according to analysts.<\/p>\n
Even if the central bank does increase rates, it would be at a
\nslower pace than the Federal Reserve, Citigroup economist Anton
\nGunawan said over the weekend.<\/p>\n
\"Aside from oil prices, domestic factors such as inflation and
\nthe rupiah pose more of a threat to local interest rates than
\nexternal (factors).<\/p>\n
\"Especially as the expected U.S. rates hike will only take
\nplace gradually,\" Anton said, predicting that the Fed's rate
\nhike would not be higher than 25 basis points.<\/p>\n
Having raised rates for the first time in four years on June
\n30, the Fed is widely expected to raise rates further during a
\nmeeting on Aug. 6.<\/p>\n
The meeting follows recent U.S. economic data showing that
\ninflation rose at 3.3 percent rate in the second quarter, on par
\nwith the first-quarter's pace.<\/p>\n
However, core inflation -- which excludes volatile food and
\nenergy prices -- only rose by a modest 1.8 percent, lower than
\nthe 2.1 percent increase in the previous quarter. The slowdown in
\nthe core inflation rate is seen as a cause for the Fed to
\nincrease rates gradually.<\/p>\n
At present, the U.S. benchmark rate stands at 1.25 percent.<\/p>\n
\"Citigroup predict the U.S. rate will reach 2 percent by the
\nend of the year. I do not think Bank Indonesia will follow the
\nFed by raising the local rate by 0.75 percent until next year,\"
\nAnton said.<\/p>\n
He said that while the volatility of the rupiah -- which plays
\nof factor in inflation -- was expected to continue at least until
\nafter a new government was formed, the local currency would begin
\nto rebound heading toward the end of the year and reduce
\ninflationary pressure.<\/p>\n
\"With a controlled full-year inflation, maybe less than 7
\npercent, I think the SBI (the central bank's benchmark promissory
\nnotes) will reach no higher than 7.75 percent at the end of the
\nyear,\" Anton said.<\/p>\n
The SBI currently is at 7.36 percent.<\/p>\n
StanChart economist Fauzi Ichsan predicted a similar rate for
\nthe SBI, betting on a rebound in the rupiah after the elections
\nwere completed as the dollar began to feel the pinch of the
\nU.S.'s huge trade and current account deficit.<\/p>\n
The easing political uncertainty, Fauzi said, coupled with the
\nU.S. dollar's expected shaky footing, \"are likely to help the
\nrupiah rebound to 8,500 per dollar if not stronger by the end of
\nthe year\".<\/p>\n
He forecast that the one-month SBI rate would likely increase
\nonly to 7 percent by the end of the year, a slower increase than
\nthe expected rise in the U.S. interest rate.<\/p>\n
Fauzi and Anton also agreed that the central bank had less
\nincentive to raise the interest rate because this would push up
\nits monetary costs, given the huge amount of excess liquidity
\nfrom the banking sector currently stashed in BI's investment
\nfacilities, such as SBIs and the overnight placement facility
\n(FASBI).<\/p>\n
Some Rp 20 trillion to Rp 40 trillion of excess liquidity are
\nplaced daily at the central bank through the SBI and FASBI.<\/p>",
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