Subscriber Update - Impact Fed Tapering on Indonesia's Financial Markets
Indonesia Investments Report - August 2021 Edition: Virtual Independence Day
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15 September 2021 (closed)
Jakarta Composite Index (6,110.23) -18.86 -0.31%
USD/IDR (14,146) -6.00 -0.04%
EUR/IDR (17,335) +57.05 +0.33%
Relief Rally in Asia after Fed Leaves Interest Rates Unchanged
After the US Federal Reserve decided to leave its interest rates unchanged at the September policy meeting on Wednesday (21/09) Asian stocks surged while emerging market currencies appreciated against the US dollar. Indonesia's benchmark Jakarta Composite Index had surged 1 percent by 11:30 am local Jakarta time, while the Indonesian rupiah had appreciated 0.38 percent to IDR 13,087 per US dollar (Bloomberg Dollar Index). A delay in US monetary tightening makes the higher yielding (but riskier) emerging markets assets an attractive alternative.
The US central bank again emphasized that the case for a rate hike has strengthened, although the institution also cut its growth forecast for US economic growth from 2.0 percent (y/y) to 1.8 percent (y/y) in 2016. However, it emphasized that it sees the rebound continuing through the second half of the year.
Overnight US stocks surged on the back of the Fed's decision, particularly sending the dividend-paying stocks higher. The Dow Jones industrial average rose 0.9 percent, the Standard & Poor's 500 index surged 1.1 percent, while the Nasdaq composite climbed 1 percent on Wednesday.
On Thursday (22/09) Asia is experiencing a relief rally after the US Federal Reserve decided not to change its monetary policy yet. This relief rally is a sign that investors had previously been highly concerned about a looming US interest rate hike. For the short-term it means that capital inflows into emerging markets, including Indonesia, can be expected. However, a December Fed Funds Rate hike seems a real possibility. According to Chicago Mercantile Exchange’s FedWatch tool, there is a 59.3 percent chance of rate hike at the Fed's December policy meeting.
One day earlier, the Bank of Japan announced that it left its negative interest rate on certain commercial-bank deposits unchanged and announced to introduce a ten-year interest-rate target. It promised to keep expanding the nation's money supply until inflation surges above 2 percent for an unspecified time. Japan is closed for a public holiday today.
Meanwhile, crude oil prices (as well as metal prices) rose on the back of a weaker US dollar.