After the US central bank ended the quantitative easing program last year, there has been severe market volatility in 2015 due to uncertainty about the US rate hike (as well as China's economic slowdown). However, over the past weeks markets had become increasingly convinced that the Fed Fund Rate would be raised from the historic low of 0.00-0.25 percent (the level it had been since 2008) in the last policy meeting of 2015. Therefore, the Federal Reserve acted in line with market expectations causing a sigh of relief. Moreover, the rate hike implies that the US economy is back on track (the USA is a key export market for Asian countries). The Federal Reserve further stated that future rate hikes will be gradual and gently.

Jakarta Composite Index (IHSG):

Generally, the US dollar strengthened after the rate hike announcement. The rupiah, however, appreciated against the US dollar. Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) appreciated 0.16 percent to IDR 14,028 per US dollar on Thursday (17/12). Meanwhile, Indonesian bonds advanced, pushing the ten-year yield down the most in two months.

Indonesian Rupiah versus US Dollar (JISDOR):

| Source: Bank Indonesia

Discuss