The euro sign sculpture is pictured in front of the building that used to host the headquarters of the European Central Bank (ECB) in Frankfurt am Main, western Germany. (AFP Photo/Daniel Roland)

ECB’s Quantitative Easing, US Fed Rate To Impact Indonesia

BY :TABITA DIELA

JANUARY 29, 2015

Jakarta. Indonesia’s economy is likely to benefit from the European Central Bank’s move to start a quantitative easing policy but may struggle when the US Federal Reserve raises interest rates, said a senior local executive at JPMorgan Chase, the largest banking institution in the United States.

The ECB is on the verge of executing a massive stimulus program to buy up to 60 billion euros ($68 billion) of securities per month from March this year to September 2016.

That means the global market will soon  be flooded with more than 1.1 trillion euros of liquidity.

“Part of it may go to emerging markets, but as to how much, I don’t know. What’s certain is, it [the money] will boost liquidity at the bond and equity markets,” said Haryanto Tiara Budiman, managing director and senior country officer for JPMorgan Chase Indonesia.

Haryanto spoke to reporters on the sidelines of  a seminar titled “Indonesia Economic & Market Outlook 2015” in Jakarta on Thursday, which was attended by Vice President Jusuf Kalla, Bank Indonesia governor Agus Martowardojo and high-profile businessmen, including James Riady, chief executive of Lippo Group.

“On the other hand, there is the [possibility] of a higher Fed fund rate, which we predict to happen in June. It may push for [capital] outflow,” said Haryanto, referring a typical trend when investors are likely to dump high-yielding, but riskier assets in emerging market countries like Indonesia, and flock back to the United States, the safe haven for investment.

The US Federal Reserve on Wednesday reaffirmed its view that the current 0-to-0.25 percent target range for the federal funds rate remains appropriate.

Investors believe that by June the rate will increase and will typically cause capital outflow from emerging countries.

Bank Indonesia kept its key interest rate steady at 7.75 percent in Jan. 15 at the board of governors’ monthly policy rate meeting, as part of an effort to make the country’s portfolio assets more attractive to investors.

James remained optimistic over the prospects of Indonesia’s economy and said that President Joko Widodo has had a “good start” to his term.

He praised Joko’s quick moves in launching the one-stop service for investment licenses but conceded that much work is still needed. A speed-up in infrastructure development and legal certainty is also crucial in improving Indonesia’s investment climate, he added.

Lippo Group is affiliated with the Jakarta Globe.

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