Uncertainties in the global economy are continuing. In the financial sector, efforts to rebalance the global liquidity are taking place everywhere as a number of developed countries, especially the US, need additional liquidity.
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JAKARTA, KOMPAS — Uncertainties in the global economy are continuing. In the financial sector, efforts to rebalance the global liquidity are taking place everywhere as a number of developed countries, especially the United States, need additional liquidity.
Liquidity balancing is expected to take place over a long period, and it will potentially undermine the rupiah exchange rate and affect the national financial system. Stakeholders and financial companies need to coordinate and anticipate the challenges together.
ANTARA FOTO/SIGID KURNIAWAN
Governor of Bank Indonesia (BI) Agus Martowardojo gives a press statement on the results of the Board of Governors Meeting at the BI office complex, Jakarta, Thursday (17/5/2018). Bank Indonesia decided to raise BI 7-days repo rate by 25 basis points to 4.5 percent.
The statement was made by Bank Indonesia (BI) Governor Agus DW Martowardojo in Jakarta on Friday during the launch of the no. 30, March 2018 edition of the central bank’s report Financial Stability Review themed "Strengthening the Stability of the Financial System in Efforts to Maintain Growth Momentum".
According to Agus, the US needs extra liquidity to cover its current account deficit. The yield of the 10-year US Treasury Bond has increased from 2.4 percent to 3 percent. The yield is expected to climb further to 4 percent this year and 5 percent next year.
"A lot of funds from developing countries will migrate to the US. We should anticipate it together. BI tries to address it through a policy mix. One of them is by raising the interest rate,” he said.
BI\'s board of governors on Thursday decided to raise the central bank’s benchmark BI rate, or the BI Seven-Day Reverse Repo Rate, by 25 basis points to 4.5 percent.
BI deputy governor Erwin Rijanto said the impact of trade wars between the US and China on global economic growth would bring additional challenges. If the trade dispute continued and escalated, it would reduce global gross domestic product (GDP) by 0.3 percent.
"Domestically, inflation resulting from the rise in prices of basic commodities, crude oil and weakening of the rupiah need to be controlled. In addition, the uncertainties in the global economy can also bring a risk to our balance of payments, "said Erwin.
ANTARA FOTO/HAFIDZ MUBARAK A
Finance Minister Sri Mulyani gives press information after a meeting of the Financial System Stability Committee (KSSK) in the first quarter-2018 at the BI Office Complex, Jakarta, Monday (30/4/2018). Indonesia\'s financial system is considered stable and under control in Q1/2018 despite mounting financial market pressures.
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Weakening
A day after BI raised its benchmark interest rate, the rupiah exchange rate continued to weaken. According to the Jakarta Interbank Spot Dollar Rate (Jisdor), the rupiah weakened to Rp 14,107 per US dollar on Friday from Rp 14,074 per US dollar on Thursday. Friday’s rupiah exchange rate was the lowest since Oct. 7, 2015. On Oct. 6, 2015, the rupiah exchange rate plunged to as low as Rp 14,382 per US dollar.
At the close of trading Friday, the Jakarta Composite Index (JCI) declined by 0.56 percent to 5,783.31. Since the beginning of the year, JCI has lost 9.01 percent.
Tito Sulistio, the president director of the Indonesia Stock Exchange (IDX) said the trading in the local stock exchange was affected more by uncertainties in the domestic and global economy, rather than by the weakening of the rupiah. "Up to February 19, the JCI still rose significantly, although the rupiah had begun to weaken. Factors affecting the fall of the JCI are uncertainties of the domestic and global economy," he said
ANTARA FOTO/HAFIDZ MUBARAK A
Finance Minister Sri Mulyani (second left) and Bank Indonesia Governor Agus Martowardojo (second right), Chairman of the Board of Commissioners of the Financial Service Authority (OJK) Wimboh Santoso (left) and Chairman of the Board of Commissioners of LPS Halim Alamsyah (right) speak at a press conference after a meeting of the Financial System Stability Committee (KSSK) of the first quarter-2018 in the BI Office Complex, Jakarta, Monday (30/4/2018). Indonesia\'s financial system was considered stable and under control in Q1/2018 despite mounting financial market pressures.
Other sentiments
Commenting on the increase in BI interest rate, Tito said it might bring a negative impact to the performance of some listed companies, because there would be an increase in lending rates following the rise in the BI rate.
The rise in BI rate, according to him, may be too late. The US central bank, the Federal Reserve, raised its benchmark interest rate by 25 basis points to a range of between 1.5 percent and 1.75 percent in March. China\'s central bank also raised its benchmark interest rate by 5 basis points from 2.5 percent to 2.55 percent by the end of 2017.
Nevertheless, Tito appreciated BI\'s decision to raise its benchmark interest rate, because it showed the responsibility of the central bank in stabilizing the rupiah exchange rate.
However, the stock market still required more positive sentiments. "The interest rate adjustment is necessary to cope with the sharp fluctuation of the exchange rate. However, another policy mix is still needed for JCI stability, "he said.
Phintraco Securitas analyst Valdy Kurniawan said the government and BI needed to optimize the monetary policy mix, prudential macro and payment system to maintain macroeconomic stability. The policy is also important for the stability of the financial system in order to support the economic recovery that is now taking place.
"The majority of investors are waiting for other market sentiments, especially those that will bring an impact to the strengthening of the US dollar exchange rate," he said.
He said it was normal that BI\'s interest rate did not bring much effect to the JCI because the investors had anticipated the central bank’s measures.
