The US Central Bank, the Federal Reserve, has just raised its benchmark interest rate to 4.25% - 4.5%. This condition impacts global markets, including the Indonesian capital market. From here, several Indonesian economists began to calculate what results could arise.

Ratih Mustikoningsih, an Indonesian economist, said that a spike in interest rates in the United States could boost the dollar's value. Investors will start moving into safe assets, such as the dollar, to hedge their investments.

Until the market closed on Friday and before the market opened on Monday, the demand for dollars was already very high. This condition immediately suppresses other exchange rates, which also burdens companies with an import trading base and still relies on the dollar.

Furthermore, Ratih also tries to look at listed companies with global bonds. He said that the significant dollar exchange rate could burden payments. Therefore, the effect on the Rupiah will be felt immediately if BI does not directly deal with it.

Will the Indonesian Economy and the Rupiah Remain Safe After the Fed's Interest Rate Increase?

"The increase in the FED interest rate triggers a depreciation in the Rupiah exchange rate. In addition, this will directly impact imported inflation, so that issuers using imported raw materials will be pressured by the difference in exchange rates," said Ratih.

The 50 basis point increase was the highest in 15 years. Interest rates are now in the range of 4.25 to 4.5 percent. The move from the Fed also indicates that the US is still having difficulties dealing with information, which could even lead to a recession.

Bank Indonesia said that their party had carried out good coordination on fiscal and monetary policies. The response from Bank Indonesia was also considered rational in advancing the domestic market. But the settlement now is how it impacts global investor interest.

According to Habib Rib, he said that the role of Bank Indonesia would be central. Moreover, if you look at global market sentiment, the Indonesian market also has vulnerabilities partly because it has a current account surplus through 2030.

Bank Indonesia is also confident that there will still be foreign investors investing in Indonesia's strategic sectors at moments like this. Indeed, increased interest rates are a threat, but the Indonesian market is stable enough to provide fresh air to the Rupiah.

"This still raises something uncertain so that it will provide a plan for the entry of foreign capital into the domestic financial market. But this also puts pressure on the exchange rate.”

Luckily, Indonesia's fundamental economic factors are at a solid level based on BI's benchmark interest rate. Bank Indonesia is likely to raise the benchmark interest rate in December 2022, and it is at the level of 5.50%," said Faisal, an economist. 

However, the focus is now on the trading value of the Rupiah, and this transaction is expected to provide fresh air to this currency.

Rupiah Conditions Could Get Worse Due to Fed Interest Rates due to Impact on Capital Markets

"The US dollar strengthened due to messages that tend to be hawkish from the chairman of the Fed, Jerome Powell. This causes market fears of an economic recession as well. The Central Bank will set a high bar for rate cuts," stated the expert analyst.

In other words, the Fed's interest rate, which has risen to its highest level in 15 years, will negatively impact the Indonesian capital market. And this then continues its impact on the Rupiah.

Indonesian economists also say that this will not be the last time. The Fed will continue to be aggressive, and observers believe US interest rates will still increase 3-4 times in 2023. It is hoped that global economic markets will be much more prepared now.

The FED is in the spotlight for this week's economic and forex news. The annual meeting was held again and now discusses US inflation and recession sentiment. In this regard, it is believed that Bank Indonesia will receive a clear impact that will be manageable.