Indonesia's Economy Can Weather Shocks From Fed Hikes: Sri Mulyani

Indonesia's economy is now in a much better position to weather any shocks on global markets due to further increases in United States interest rates, Finance Minister Sri Mulyani Indrawati said in an interview on Thursday (03/11). (Reuters Photo/Darren Whiteside)

By : Ed Davies and Fransiska Nangoy | on 11:52 AM November 03, 2017
Category : Business, Economy

Jakarta. Indonesia's economy is now in a much better position to weather any shocks on global markets due to further increases in United States interest rates, Finance Minister Sri Mulyani Indrawati said in an interview on Thursday (03/11).

In 2013, Indonesia was labeled one of the "fragile five" emerging economies after suffering from sharp capital outflows when then US Federal Reserve Chairman Ben Bernanke announced a tapering of its quantitative easing program.

Asked whether the rupiah was still vulnerable, Sri Mulyani told Reuters she hoped not because: "fiscal policy is sound. We have a relatively low deficit compared to many other emerging country, even advanced countries."

The rupiah has fallen 0.9 percent so far this year and last month touched its weakest since mid-2016 as the dollar strengthened broadly against emerging market currencies, while Bank Indonesia unexpectedly cut interest rates.

A Reuters poll shows that traders are bearish on the rupiah for the first time since December 2016.

"We have quite a comfortable balance of payments as well as monetary policy that I think is supportive enough for growth without creating a pressure [on] inflation," she said.

Finance Minister Sri Mulyani Indrawati smiles during an interview at the Finance Ministry offices in Jakarta on Thursday. (Reuters Photo/Darren Whiteside) Finance Minister Sri Mulyani Indrawati smiles during an interview at the Finance Ministry offices in Jakarta on Thursday. (Reuters Photo/Darren Whiteside)

The Federal Reserve has raised US interest rates twice this year and is expected to hike again in December and to start to reduce the size of its balance sheet. On the other hand, Bank Indonesia cut rates in August and September by a combined 50 basis points in a bid to fire up economic growth that has stuck stubbornly around 5 percent for the past few years.

Sri Mulyani said under Janet Yellen the Federal Reserve had improved its communications over policy after saying it had previously not provided adequate time for countries to make preparations.

"Janet Yellen is almost at the end of her first term. She has gained a lot of experience in dealing with the psychology of the market," she said.

US President Donald Trump is expected to nominate Federal Reserve Board Governor Jerome Powell as the next chair of the central bank on Thursday.

Sri Mulyani, former managing director of the World Bank, said the next head of the Federal Reserve needed to have a good understanding of the implications for the wider world of US monetary policies.

"I do hope that the choice is going to be a figure that has a very good understanding that the policy of the US is not only a matter for the US," she said.

Turning to domestic growth, Sri Mulyani said stronger global growth was starting to feed through to Indonesia's economy.

The government expects Southeast Asia's biggest economy to grow 5.4 percent next year, compared with a target of 5.2 percent this year helped by a recovery in exports and investment.

Reuters

Show More

 
MORE NEWS