Mitigating Impacts of US Monetary Policy on Indonesia

Fed rate hikes and the US debt ceiling may impact Indonesia’s national economy. To what extent will it affect the national economy?

Rinaldi Azka

15 Jun 2023 - 01.28
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Mitigating Impacts of US Monetary Policy on Indonesia

The United States Bank Central Logo or The Federal Reserve in Washington, United States, Sunday (12/19/2021)./Bisnis/Courtesy of Bloomberg-Samuel Corum.

Bisnis, JAKARTA – Market players are assessing the potential risks associated with a Fed interest rate hike and the United States debt ceiling, which could lead to turmoil in the domestic financial market. However, this situation might benefit Indonesia.

The Federal Reserve is scheduled to hold a meeting on June 13-14, 2023, where a decision on raising benchmark interest rates by 25 basis points (bps) is expected. This decision will take into account the lower inflation in May 2023 compared to April 2023, both in general and core inflations.

The domestic financial and fiscal markets face risks as the increase in the US debt ceiling is addressed through massive issuances with high yields from the US Treasury, potentially causing a shift in capital flow from emerging markets to the US. 

If this occurs, the Indonesian government's Government Securities may not be fully absorbed by the market. To address this, the government may exploit a loophole in the Financial Sector Development and Reinforcement Law (PPSK Law) by involving Bank Indonesia in the financing of the State Budget.

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© Copyright 2024, Hak Cipta Dilindungi Undang - Undang.