Fed Minutes: QE3 Ends in October 2014 but No Immediate US Interest Rate Hike
The US dollar continues to depreciate against emerging currencies after the minutes of the Federal Reserve’s latest FOMC meeting, released Wednesday (09/07), suggest that the US central bank will maintain historic low interest rates (0.0 - 0.25 percent) into 2015. The Fed informed that US interest rates hikes will only occur ”a considerable time” after the US asset-buying program (quantitative easing) has ended. Based on the latest minutes, this program is expected to end in October 2014.
Higher US interest rates are a threat to emerging economies, including Indonesia, as it will most likely result in capital outflows from these emerging economies (cheap US dollars will flow back to the US), thus causing a stronger US dollar. However, after seeing the latest Fed minutes, there is no immediate threat of higher US interest rates and thus market participants continue to invest in emerging assets.
The Federal Reserve said that the quantitative easing program (QE3) will end in October this year, provided that the US economy continues its improving trend. The program, which initially involved asset purchases (US treasuries and mortgage-backed securities) worth USD $85 billion per month, has been wound down since the start of 2014. Last month, another chuck of USD $10 billion was lopped, reducing the program to USD $35 billion in June. Next week, Fed Chairwoman Janet Yellen will elaborate on the central bank’s monetary policy in front of the US Congress.
Today’s markets in Indonesia have also been supported by speculation that reform-minded presidential hopeful Joko Widodo will be announced Indonesia’s next president as the authoritative quick count results show that he has won yesterday’s presidential election by a margin of approximately five percent.
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 1.25 percent to IDR 11,549 against the US dollar:
| Source: Bank Indonesia