Bank Indonesia Wary of The Fed Interest Rate Hikes Next Year

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  • The logo of Indonesia's central bank Bank Indonesia

    The logo of Indonesia's central bank Bank Indonesia

    TEMPO.CO, Jakarta - Bank Indonesia suggests that the government and the House of Representatives (DPR) should be wary of The Fed interest rate hikes next year. Interest rate hike will be taken into account in the proposal of the rupiah exchange rate assumption in the draft 2018 state budget (RAPBN).

    Bank Indonesia Senior Deputy Governor Mirza Dityaswara said that The Federal Reserve’s rate hike will continue. “It might be only raised twice this year but next year, there will be another hike; but whether it would be twice, three times or more, it must continue to be monitored,” he said before the DPR Finance Commission yesterday.

    He explained that the Federal Reserve interest rate hike would undermine the currencies of developing countries, including Indonesia. The projected interest rate hikes would force the central bank to set a more conservative outlook of the rupiah exchange rate for 2018.

    Bank Indonesia has forecast the rupiah to stand at 13,500-13,700 against US dollar in 2018. The rupiah exchange rate assumption against US dollar in the draft 2018 state budget is set at 13,500 per US dollar.

    Mirza said that the rupiah exchange rate against US dollar may hit 13,400 in 2018. But it would be the maximum range to maintain Indonesia’s export competitiveness.

    According to Mirza, the inflation rate is expected to drop to 3.3 percent next year and the rupiah exchange rate is expected at Rp13,500 per US dollar. Meanwhile, economic growth assumption is set at 5.26 percent, according to Bank Indonesia.